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Investing may seem like money-making magic to the uninitiated, but those who are well-informed know that it’s really about calculating risks as best you can and leaving the rest to chance. This is especially true when you consider the way that the stock market and cryptocurrencies depend heavily on the Federal Reserves and the combination of monetary and fiscal stimulus it brings. If you’re a novice trader, the safest course of action will always be to invest in safe haven assets. Real estate is a prime example of this. However, before you can start investing money on real estate, these are a few things you need to consider first:
Your Investment Goal
The first thing you need to define is the reason behind why you want to invest in real estate. Knowing your investment goal will help determine the next steps as you invest. Some investors buy real estate in order to diversify their portfolio, which will help them manage risk across all their investments.
Other investors buy real estate in order to acquire an income-generating asset, either by renting out the property or by fixing it up and selling the property for a significantly higher price.
Property Type
Knowing the property type you plan to invest on will also help you determine the clientele you’re going to be working with. Each property type will come with its own set of pros and cons in terms of maintenance, profits, target market, location, and security. The four general types of realty property types are:
- Residential – These include apartments, condominiums, bungalows, and townhouses
- Office- These are usually located in prime locations that usually have high traffic. These properties are rented out long-term and some examples include office buildings, a floor on a building, or an office park
- Retail – These are properties that are used as places to sell goods. These include roadside kiosks, enclosed malls, and retail stores
- Industrial – These types of properties tend to have lower maintenance costs compared to residential and office properties, as they are often located in less attractive areas
The one thing all these property types have in common is that all lessors conduct tenant screening before accepting a tenant. Not only is this a means to determine a tenant’s ability to consistently pay rent on time, but it is also a security measure to help ensure that you don’t bring in dangerous and destructive people into your property.
Property Valuation – Determines listing price, taxes, financing options
It’s important to have your property valued before listing it as this gives you an insight on important details such as your listing price, tax liabilities, and financing options. It also follows that if you plan to have part of your investment financed, you need to have a good understanding of how mortgages work.
Indirect Real Estate Investment
Finally, you don’t necessarily have to own real property in order to begin investing on the market. Real estate investment trusts are a good way to get your feet wet in real estate investing without having to shell out a large amount of cash. This is an especially attractive option considering the stability and potential growth of REITs.
