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Want to start investing in real estate, but don’t know where to start? Yeah, you’re in the right place.
Because of the advent of micro-investing platforms like FundRise, you can now invest in real estate without the need of a gazillion dollars.
Read also: How to buy a house (step-by-step guide)
5 reasons to invest in real estate
Investing in real estate for the very first time can seem scary.
One reason you might be scared to invest in real estate is that it may be the largest amount of money you have ever invested in any one single thing.
If you need to finance your real estate investment, you might also feel nervous about your ability to pay off your debt and still earn a return on your investment.
I’m not going to tell you there aren’t valid reasons to be nervous, but I am going to tell you that sometimes the rewards are worth the risk.
Here are 5 reasons you should invest in real estate.
- 1. You Don’t Have To Be A Landlord
Just because you are considering investing in real estate, it doesn’t mean you have to become a landlord. You could instead hire a property manager, so you don’t have to deal with the headaches renters would otherwise bring to you.
Or you could go about investing in real estate even differently by purchasing a fixer upper and “flipping it” for a profit when you resell it.
- 2. Interest Rates Are Low
While interest rates are still low on real estate mortgages, it’s a better time to borrow for your investment if you need to.
You don’t want to wait until the rates climb again because it will cost you more to borrow the same amount for your real estate investment.
- 3. You Can Find Good Deals
Lower interest rates mean an increase in demand which, in turn, can cause real estate prices to increase. However, if you look carefully, you will find there are still good deals to be had.
One way to find good deals is by networking with other investors. You will likely learn a lot, and you may also come up with some good deals in the process.
Another is by working with your favorite realtor. Your realtor can be on the lookout for investment properties for you and can then contact you right away when a new property hits the market.
You could also invest in another town or even out of state, where the demand, and thus prices, may be lower. Do a little research first to ensure you are making a sound investment, then look for deals.
- 4. You Don’t Necessarily Need A Lot Of Money
If you are wondering how you can invest in real estate without a lot of money, check out a Real Estate Investment Trust, or REIT.
By investing in real estate in this way, you put your money with other people’s investment money and everyone shares in the profits.
An REIT has a team of real estate investment experts who chose the properties to invest in which increases everyone’s chances to gain on their investment.
They also reduce risk by placing your money in more than one real estate investment to increase the likelihood of growth on your investment.
You can invest in many REITs with an initial investment of only $1,000 instead of the many thousands you would have to come up with on your own for a down payment on a piece of property. It’s a great way to get started on real estate investing.
- 5. Diversification
By doing any amount of investment research, you will learn that the experts agree you should diversify your investments to reduce your risk of loss and increase your profitability.
Investing in stocks or mutual funds is great, but diversifying into real estate helps you increase your chances of growth for your investment dollars.
If one of your investments isn’t doing well, the other might be doing better so that you can withstand some losses without panic.
5 beginner mistakes to avoid
Here are 5 of the worst mistakes made by real estate investors:
- 1. Failing To Plan Ahead
A lot of people make the mistake of buying a property before they know all about it.
Sure, a grand home that’s priced to sell may seem like a good idea at the time, but if you don’t have a plan in mind before you buy, you could wind up with a headache instead of a great investment.
A good real estate investor sees problems before they arise and learns to avoid those minefields.
- 2. Inadequate Or Improper Financing
Proper financing is crucial for the modern real estate investor. An exotic or an out-of-the-ordinary mortgage is probably not your best option as far as real estate financing is concerned.
Investors who opt for non-conventional or adjustable rate home loans often find themselves in financial trouble when rates go up.
- 3. A Get Rich Quick Attitude
Don’t make the all-too-common mistake of looking at real estate as a way to make a bundle of money in a hurry. This is especially true for investors who expect to easily “flip” a property without doing any hard work.
Experts say to avoid late-night televised ads and seminars that promise to make you rich with real estate. If it were that easy, everyone would be doing it.
- 4. Going It Alone
You may be a fully independent adult, but that doesn’t mean you should try to buy a property without the assistance of an experienced Realtor or other real estate professional.
In addition to a real estate agent, you’ll also need the help of an appraiser, a home inspector, a great attorney, and an insurance agent who understands the ins and outs of real estate investment.
A local real estate agency can show you homes that you might not otherwise know about. Consult with a local real estate broker who can show you great homes and help you to network with all the professionals you’ll need to perform a brilliant transaction.
- 5. Underestimating Costs
If you think that buying a house means all you have to do is move in and enjoy your new residence, please think again.
Underestimating the true costs of home ownership is one of the worst mistakes made by modern real estate investors.
Maintenance, repair and upgrades are costs that one needs to anticipate prior to making a real estate purchase.
I certainly don’t intend to make you shy about investing in real estate.
If you are careful to plan ahead, know how much mortgage you can afford, and go into the deal fully prepared to pay future maintenance costs, you can make a transaction that eventually rewards you handsomely.
Wrapping it up
Real estate can be a savvy investment, but you’ve got to do it wisely. A well-defined strategy can be a solid foundation that supports your portfolio and helps you to build wealth.
Do it right, and you may realize amazing profit potential. Do it wrong, and you could lose your house and everything in it.