Investing in real estate can be very exciting yet scary. For many people, real estate investments are their way to reach financial independence. While others think of them as a way to get a reliable passive income for many years to come.
The world of real estate invites many kinds of people. Those who want to become a landlord, house flippers, or simply a property owner. If this is your first time trying to invest in real estate, there are some important things that you need to learn first.
Here are some of the early pointers that you need to be aware of. Hopefully, these pointers can help you get started and finally find out the best ways to make money in real estate.
Online real estate investing platform
Many things are done online nowadays, and real estate investments are no exception. There are so many online real estate investing platforms that you can try, such as LendingClub and Prosper. Through these online platforms, you can contact borrowers who need your money for various personal needs. These needs are always related to things like home renovation, home buying, etc.
These platforms also connect real estate developers with investors who are willing to finance various projects. These funds are either through equity or debt. Any investors who are hoping to receive monthly or quarterly distributions are welcomed to try these platforms. Of course, there are risks and other fees that you have to bear.
Can you be a landlord?
A lot of people are dreaming of becoming a landlord. But the reality is not everyone is cut out to become one. Being a landlord is a 24/7 job, and there are so many things that you’ll have to deal with. From handling tenants and properties to taking care of mortgage and property taxes.
Sure, you can hire a property manager to handle all the difficult tasks. But still, there are challenges that you must overcome no matter what. But, if you think you can handle it all, or even better you know how to create a team that can handle everything, then being a landlord might suit you the most.
Find the right location
Buying a property is hoping to rent or sell it later can be risky. You must be aware of all the factors that can affect your profits, such as location, age of the property, costs of repairs, etc. And the location is probably going to be the biggest deciding factor here.
A property that is located in a bustling and growing city is going to be worth a lot more in the future when the city is going to get even busier. If you are trying to rent the property, you must consider its location related to the nearest workplaces, train stations, schools, parks, etc. Take notes of the neighborhood as well, make sure it has low crime rates and is relatively safe.
Know your margins
Flipping a house isn’t as easy as it sounds, especially with the margins being so close nowadays. In this day and age, it is expected for a property to return only about 3-5% profit from the initial investment.
Many people would tell you to aim for 10%, but the reality is, it is going to be very difficult. Considering that you might have to spend more money on repairs, maintenance, advertisements, and a real estate agent if you hired one.
Prepare for unexpected costs
Having a plan is great, but a fixed plan can ruin you. Investing in real estate carries many risks and other additional costs. I am not only talking about maintenance and upkeep costs, but also the potential emergencies that may occur.
Think of natural disasters, fires, burst pipes, roof damages, and many other unexpected problems. That’s why it is recommended to set aside 20 to 30% of your rental income for emergency or unexpected costs. It is better to get a smaller return than being in the red.
Investing in real estate can be overwhelming and scary for beginners. But if you do your homework, you should be able to get your first profit. And after that, you can learn from your experience and other investors and become a better real estate investor.