The real estate market – particularly at this moment – is a highly lucrative one, as prices continue to rise with almost no end in sight. After all, as noted by the real estate experts at DealMachine, “Some of the many benefits of investing in real estate include passive income, excellent returns, stable cash flow, and tax advantages.”
As a result of this trend in the marketplace and consistent opportunity of the marketplace, many are wondering an important question: How can I get involved in the real estate market?
What is real estate investing?
There are a few forms of real estate investing, and it is important that you decide which form appeals the most to you. These include:
- Purchasing real estate – either residential or commercial – fixing it up, then selling it at a higher value. This process is often known as “flipping” a property.
- Purchasing a real estate property and renting it out, using the rent as cash flow to not only maintain the property but turn a profit for yourself.
- Investing in a Real Estate Investment Trust, or REIT, and then reaping the returns. This process is similar to that of investing in a stock.
Advantages & Disadvantages
On one hand, real estate investing can be great for your financial portfolio. It can help you diversify your assets, be extremely lucrative, and come with extensive tax advantages. Furthermore, real estate assets usually appreciate, meaning that they become more valuable over time. As a result, you can often gain money by purchasing an asset and just holding it.
On the other hand, real estate investments can be time and labor-intensive. You have to invest a good amount of money into them, so the barrier to entry can be relatively high. Furthermore, you are never more than one bad tenant or accident away from having your asset damaged and potentially facing a real financial loss.
Best practices for real estate investing
When it comes to real estate investing, there are a few things you absolutely need to keep in mind. First and foremost: Have a real estate investing business plan. After all, you would never consider an investment of tens of thousands of dollars without first considering where to spend that money, estimating cash flows, and determining the specific types of investments that you want to make. Investing in the real estate market without a plan is foolish, as creating a real estate plan can help you answer a variety of questions and spend your money in the most efficient way possible.
Second, you should make sure that you fully understand the market in which you are buying or selling. This means knowing a specific area inside and out, fully understanding its strengths and weaknesses, and then how to promote that property when you are looking to sell it or find a new tenant. You wouldn’t just parachute into a market that you barely had any knowledge of, but if you can acquire the right kind of knowledge, you can learn to fully understand a certain market and be in a better position to invest in it.
Third, pay attention to changes and trends at the national, state, and local level. This means that you need to invest your time and talent in regular updates about the real estate market, changing regulations, and more. It may also mean getting active in a local real estate group that can help ensure you know what you are doing.
Following these practices can help to get you started in the potentially lucrative world of real estate investing.