Basics of Real Estate Investing
Nobody can tell the future. It is always a good idea to plan for the future since one never knows when something unexpected could happen. This means a person might want to consider putting one’s money to work in order to make sure he or she has more of it in the future. One option would be to invest in real estate. However, there are various strategies for investing in property you can consider. Choosing the best strategy for you depends upon a your specific situation and personal goals.
Risk vs. Reward
When deciding whether or not to invest in real estate one should consider whether the risk is worth the reward he or she would receive from investing in property. The return on investment, or ROI one earns from investments should be sufficient to cover the risks taken. When figuring profitability, bes sure to include any related taxes. There are various costs associated with owning real estate to consider, such as insurance, routine maintenance needs, and utility bills.
Although in theory, investing in property is quite simple when you have a basic understanding of risk, economics, and investment. Basically, one simply purchases property, avoids bankruptcy and then earns rent in order to possibly purchase even more property. However, just because it is conceptually simple that does not mean it is easy to be successful in property investment. Making a mistake can result in serious problems which could be anything from minor issues to major financial and legal catastrophes. This makes using a licensed real estate agent, especially one familiar with real estate investing invaluable.
Appreciation of Value Creates Wealth
When the value of a property increases due to market pricing, it is known as appreciation. As a general rule, real estate appreciates consistently when looked at over the long term. The land around a property can become more scarce, which decreases supply, which means price increases.
In addition to natural appreciation real estate values can increase when the area around a property becomes more developed in one way or another. For example, a large shopping center may be constructed next door which will make the area more attractive to buyers and renters, therefore increasing demand and as a result, creating appreciating property values.
Additionally, one can make upgrades to his or her investment property to increase the property’s value, which can bring a larger profit when one decides to sell a home, but make sure your improvements are cost-effective and produce a reasonable return on investment (ROI).
Investing for Income Purposes
Appreciation is not the only strategy available for investing in property. Some people may prefer to purchase a property for the purposes of earning an income from collecting rent from a tenant. This may be preferable for those who are looking to secure a stream of income for retirement years. However, this investment strategy will require the property owner to manage and maintain the rental property. Additionally, instead of residential homes or apartment buildings, one can earn cash flow by operating storage units, office buildings, car washes and various other types of business property.
How to Finance Investment Property
The most common way to finance an investment property is through a traditional mortgage, although a slightly different type, and usually with a higher interest rate. Of course, financing an investment property has the additional interest expense, so be sure your bottom line balances before the purchase. If cash is an option, it’s usually cheaper to go that route, but financing does help with leveraging your position to owning multiple properties at once.
Discuss these options with an experienced Realtor to make sure your plan is sound before you begin investing. And don’t forget, hiring a real estate agent to help you buy property is usually FREE, or in the case of Cash King Realty — you can share in a portion of the buyers side commission, which is like getting paid to buy a home.
It is important take advantage of using a professional, not only to educate and protect you, but to provide an additional layer and barrier for protection for any property you may buy.