3 Tips to Begin Investing in Real Estate
Still on the fence about investing in real estate?
We get it. Hearing that real estate investing is the hottest investment in the market right now might not be enough for you to simply jump in and invest. If not now, when? By the time new investors in real estate jump into the market, the margin for returns begins to plateau. You research, research and research, and by the time you are ready to invest, the market has already peaked.
Hey, we aren’t saying that you should sell your stocks and bonds when you are ready to invest in real estate. We promote diversification. So much so that we put together 3 essential tips that will help you do exactly that: DIVERSIFY.
1. Start Small and Test the Waters
We hear time and time again that people take all of their investment capital, place it into one asset in hopes of recouping their investment within a few months. New investors are excited! Excitement is AWESOME; however, sometimes when people get excited they trust too easily. They find the first operator who “wows” them with their investment portfolio and track record. Before they know it, their money is nowhere to be found. We suggest that no matter the operator or what you hear, you start small. Start with fifty thousand or one-hundred thousand and see the results. Based on your risk/reward preferences, begin to build and grow your portfolio to whatever feels comfortable for you. Let real estate investing supplement your investment strategy…not replace it.
2. Decide on What Investment Strategy Works For You
Risk/reward preferences differ from investor to investor. The first question you should ask yourself is, “am I a passive or active investor”? Here are few simple definitions of each:
ACTIVE REAL ESTATE INVESTOR
An Active Investor is someone who enjoys full control of their investment. This entails driving the property on multiple occasions to see if rehabilitation updates are being conducted correctly. Once the updates are complete, they either have the option to sell or hold on to their investment. If they choose to hold they must make sure that rental payments are on time, take on the role of the property manager to ensure all is running smoothly, and pay taxes. If they choose to resell their investment they must: hire a realtor which includes marketing costs for potential buyers, all the while hoping to sell their investment for a lofty profit. In both instances, you could simply consider this a full-time job.
PASSIVE REAL ESTATE INVESTOR
A Passive Investor is someone who enjoys the full-time job they currently hold. They have the security of income as well as the opportunity to continue building their investment capital for future diversification. Passive investors get the best of both worlds; they reap the benefits of long-term appreciation and very limited day-to-day involvement in their investment.
Once you figure out what type of investor you are, you can continue to Step 3.
3. Get To Know Your Neighbors
As we all know, investing money in hope of a return can be extremely intimidating. Your skepticism is high for the reward you are seeking. Become involved with the experienced people in the real estate industry. Whether they are online groups, relevant bloggers, or one-on-one consultations with trusted advisors, the more educational information the better. It will help you for future investing.
Ready to get started? If not, feel free to continue reading our blogs!