An Overview of Real Estate Investment for Beginners
Taking the leap into real estate investment is an excellent way to generate additional income. The real estate game can be intimidating, however, especially for beginners. It requires committing for the long haul and taking some pretty big risks. There are several things you should understand upfront.
Types of Investments
Think beyond the current trend of flipping dilapidated houses (though, if done right, house-flipping can certainly be a money-making venture). Investment properties can be residential, commercial, retail, industrial, or mixed-use. Owning a property outright, purchasing a property with the intention of renting it out for profit, or buying a wholesale property to renovate and sell for more money than you put into it are the primary options.
How to Buy
If you don’t have cash in hand to purchase your first property, you will have to take on a mortgage. Be aware of the financing costs that accompany taking on debt, such as monthly payments and interest rates. Not shopping around for the best rates or considering the impact of these costs ahead of time can lead to financial ruin.
To reduce your personal risk, avoid purchasing a property in your name. Look into buying under LLCs instead. Operating under an LLC creates a separation between your personal and business finances, providing protection for your personal assets in the event of lawsuit or foreclosure.
How to Make Money
There are a few ways to earn a profit through real estate investment. The first involves property appreciation. A property can experience an increase in value due to updates and renovations you make or simply due to its location becoming more desirable over time. Relying on appreciation alone is risky because it is often unpredictable and unreliable.
Cash flow properties are a better option. To generate a consistent cash flow income, you own a property, rent the space to a tenant, and collect monthly rent. Cash flow properties can be residential, like a house or apartment building, or any type of non-residential space a business can utilize.
Additionally, non-rent or ancillary streams of income for rental properties can include things such as tenant parking fees, vending machines, apartment laundry operation fees, pet fees, application fees, and so much more. All of these small fees can add up to a substantial profit.
The key to a successful real estate investment is making sure the financial return will exceed your own costs as an investor. If you understand and use this as your basis from the start, you can avoid bankruptcy and create a consistent income.