It is an ideal move to protect and grow your hard-earned money over time without having to make risky decisions in the process.
But why invest in real estate? This article will explain to you the reasons how it can increase your wealth in the future.
What Is Real Estate Investing?
Real estate investing is a financial move of acquiring properties to generate profit through management, rental, and selling them at a higher value.
You can choose to have the property rented out to tenants every month or put it on sale at a time when you can earn a higher profit.
How does real estate investing work
No, why is real estate an investment?
This strategy of growing your income relies on the current economic status. Real estate’s value increases yearly, making it an excellent opportunity to sell or rent it out for a more significant price.
However, the expenses in managing and maintaining this property until you sell it should be lesser than its current value.
Types of real estate investments
There are different forms of investing. But first, ask yourself this question: Do you like to buy a property and sell it quickly at a higher price? Or do you prefer buying real estate to make it a rental business
Real estate investments have flexible options depending on what interests you.
Because you are putting your hard-earned money into properties, it is wise to study the types of real estate investment before making a decision.
REITs
Real Estate Investment Trusts (REITs) are one of the easiest ways of real estate investments.
With REITs, you do not need to manage a physical property and shell out money to maintain it.
Instead, REITs allow you to buy shares of company properties.
From apartment buildings to commercial centers, hotels, and offices, REITs are typically owned by companies that will enable people to purchase shares, just like how the stock market works.
As an investor, REITs pay regular dividends to you. You can also earn by selling your investments for a higher profit once REITs increase their value.
This type of investment is easy and convenient. It does not come as a surprise how millions of people in the US have put their money into REITs.
Crowdfunding
Being an investor does not require having millions of money in the bank.
You can still ace a good deal even when you only have enough money for investment.
One of the easy ways is crowdfunding.
This type of real estate investing allows a group of investors to combine their money to fund a project which requires a more significant amount that they could not support individually.
While it is considered a passive income, some crowdfunding methods also mean freezing your money for years, giving you no freedom to get what you invested when needed.
Raw Land
Raw land refers to undeveloped agricultural lands such as farms, ranches, and woodlands. What makes this an ideal investment is that it holds a potential market in the future. You also do not need to worry about monthly maintenance and operations. The only downside is that it will not give you a monthly income. You can only earn from it if you sell it at a higher price.
Commercial Real Estate
Commercial properties are a great way to invest your money. It can be a strip center, retail hub, or warehouse. With a commercial establishment, you gain monthly rental fees from your tenants, giving you a regular income stream on top of the property’s continuous increase in value.
Once it increases, it is a perfect opportunity to sell it.
However, an increase in value may not always be a surefire way to earn from this property. That is why it is essential to study the property’s location before buying it. You may also need to review your target tenants and if they can pay their monthly dues.
Residential Real Estate
Residences go the same with investing in commercial real estate buildings. But it may be a little challenging, and it requires not only money but also your time and effort.
You can buy a residential property and have it rented out. Before doing so, you may need to renovate the house to make it more pleasing to interested tenants.
You also need a property management service that will cover maintenance and repairs. This means another budget you need to take into consideration.
Again, location is critical. Before buying a house, check the area and see if it can have a potential increase in value. Some may prefer a home near public transportation and commercial establishments rather than a dead-end property. Others may want a place in a quiet and well-secured neighborhood rather than a property in a populated area.
Why investing in real estate is good
Real estate investment provides you with another stream of income that you can use in the future. It gives you a regular income for rental properties and a secured higher value in the future.
The following are the reasons why is it good to invest in real estate.
Ownership
If you are new to investing, you stumble upon this question: Why should I invest in real estate?
Well, aside from the income, real estate gives a sense of ownership, not only on the property itself but also in different aspects.
By having a property, you get a sense of being in charge. You also create opportunities for the community by providing rental homes and empowering businesses with your commercial properties.
Inflation Protection
Protection from inflation is also one of the reasons why is investing in real estate a good idea.
- The real estate value may be higher than the inflation rate, giving you more profit.
- Rental fees can increase if the inflation rate rises.
- Monthly mortgage payments may go down over time for properties acquired through a fixed-rate loan
Stable Investment
Stability in the future is another aspect of why people invest in real estate. You get financial security as your property, whether building or raw land, appreciates in time, giving you a strong cash flow.
However, remember that these properties should also be in an ideal location for them to receive higher appreciation value in just a few years.
Tax Advantages
Before getting into the benefits of real estate investing when it comes to taxes, you must understand that being an investor also means being a business owner. You take care of the tax matters by understanding your responsibility as the owner.
You can, however, write off expenses such as mortgage interest paid on the loan, maintenance expenses, homeowners insurance, and dues.
It is better to talk to a tax consultant to confirm how you can write off these expenses and the proper tax compliance for real estate investors like you.
Cash Flow
Owning rental properties that give you a stable monthly income gives you a good cash flow even after reducing operating costs and mortgage payments.
Diversification
A real estate investment is a way to diversify your income should there be a financial upheaval. Question is, why invest in property instead of stocks or other types of investments?
Is it good to invest in real estate if the economy is unstable?
Having properties is better than having stocks. If the economy takes a swift slide, your stocks will likely suffer. But if you have another stream of investment, such as real estate, it can still protect you from losses.
Leverage Funds
Real estate leverage means you use others’ money to purchase a property. Mortgage lenders and banks can loan you an amount to buy a property you can pay for a certain period. This way, you add a property under your belt, but you do not spend your own money in one go.
Build Capital
Selling a property that has a high value gives you more capital.
Again, choose a property that has the potential to rise in value.
What Makes a Good Property for a Real Estate Investment?
If you are a first-time investor, looking for the right property to invest in may be daunting.
These are the factors to consider before you get a real estate property.
Neighborhood.
The location of your property determines your vacancy rate and the types of tenants you will be attracting. Say you bought a rental property near universities; chances are students may likely be your tenants. During the summer break, you may also have fewer tenants as they go on vacation.
Job market.
A place where there are potential job opportunities is a great option. If you are near high-rise buildings and commercial establishments, people can consider your space if they want to be near their workplaces.
Proximity.
You would want a property near your home, so it will be more convenient for you to check it now and then. However, if you plan to get a property management services company, you need to worry about this factor.
Amenities.
Many would like a place just a stone’s throw away from malls, supermarkets, churches, schools, and hospitals.
Look around the neighborhood and observe if there are potential developments in the area. Likewise, you can research online if the area you’d like to buy is a property with ongoing construction of establishments, which means more development and people to attract to.
Future development.
Look around the neighborhood and observe if there are potential developments in the area. Likewise, you can research online if the area you’d like to buy is a property with ongoing construction of establishments, which means more development and people to attract to.
The Challenges of Investing In Real Estate
Like in any other business, investing in properties also has its challenges. While the benefits may still outweigh these setbacks, it pays to consider these aspects once you sign your documents.
Liquidity
Real estate investment is far different from investing in stocks.
Properties are not liquid investments, meaning the only way to get back your money is to sell it at a higher price or rent it out.
Stocks, on the other hand, are a liquid investment where you have access to your money and get it when you need to, anytime.
Starting Capital
Getting a home or commercial property requires a lot of money. Aside from applying for a mortgage loan to acquire such properties, it would be best if you also showed your lenders that you are financially capable of paying them.
Moreover, properties require money for maintenance and renovation.
Time
You can make monthly money from real estate investment, but it may only cover your mortgages and operation expenses.
The only time to make a higher income from this investment is when you sell it at a more significant value after several years.
Location
Before finally getting a property, consider its location. There is a big chance of getting a higher increase in value for your property if it is in an area where its real estate properties continue to rise.
What Are the Downsides of Investing in Real Estate?
While there are evident advantages on why should you invest in real estate, it also comes with downsides that you need to weigh in.
Knowing all these before deciding is essential so that you will be prepared in case this happens.
There’s No Guarantee
Investment means putting your money into the future. You can win some or lose some, depending on the circumstances. In real estate investments, there is no guarantee that you will successfully gain profit.
It depends on different factors if your investment will make it big or you’ll receive what you invested.
- Demand for housing
- Inflation rates
- Occurrences and events
With this, do not invest the money you need back in just a few months.
Working as a Landlord Is Time-Consuming and Exhausting
Being a real estate owner who maintains property and rents it out monthly, managing the day-to-day operations of it may take too much of your time.
If you have other jobs and this task is arduous, you need to hire a property management company to handle the job for you.
It’s Tougher to Get Financing
Lenders tend to be stricter regarding financing for others who will live in a property. They often require lower debt-to-income ratios, higher down payments, and higher credit scores.
Meanwhile, getting funding for an owner-occupied property is easy if there is a stable income and a higher credit score.
Cash Flow Isn’t Guaranteed
Mortgages and expenses arrive every month at your doorsteps. Although you expect monthly payments from your tenants, this may not always be a scenario.
There are cases when your tenants cannot pay their monthly rent. You must prepare for incidents like this and always have an emergency fund if your tenant fails to pay you on time.
Real estate investment funding
Are you eyeing investing in real estate, but you lack significant capital?
Investing in properties is still possible if you find the right lender who can help you get started.
Global Integrity Finance can assist you in getting the funding you need for your real estate investment. You may also get borrow an amount for the construction and renovation of your property. Whether you plan to get a long-term rental, fix-n-flip set-up, or a commercial property, we’ll guide you toward the loan plan that best fits your financial options.
Call us today to book a schedule with our advisors.
