If you’re looking to get into real estate investing, 2020 is a great time to start, what with the number of homebuyers increasing by the day. Investing in real estate has been paying off since the 60s with the many ways and opportunities to earn on this path. Properties purchased at any point in time are very likely to grow in value years later down the road if you know how to play the appreciation game. If you don’t have that kind of time or are looking for a steadier buck, leasing out properties promises positive monthly cash flow too.
The returns on property investment are undeniable. What’s tricky, however, is setting out on a capital-intensive industry, getting to the point where your investments are consistently paying off, and staying there. Here are some real estate investment tips for beginners to consider this year.
1. Find Your Bearings
As with anything, you have to establish your present situation relative to your competition and your goals as an investor. Start off by setting your bullseye: how much of your income you intend to depend on real estate investment, what age you intend to retire, how many children you intend to raise, among other things. Then get real with where you stand at present: how much money you have right now, how much you’ll be able to invest, your credit score, your ability to settle debt, and so on. Connect the dots and you’ll come up with a sort of mental map to navigate your investments with.
2. Start Small
There’s a saying that goes “don’t put all your eggs in one basket.” That is, make sure that when you invest in something risky like real estate that you still have enough for other endeavors if things don’t work out. The safest way to go is to start out investing in smaller properties or even just units within a complex to rent out. This way, you can test the waters and see if property investing is for you while getting returns without the guilt.
3. Or Go Big with Leveraging
If you’re feeling up for it or have the privilege of having a strong support group and safety blankets of your own, go big by leveraging a property investment. This involves buying a property, paying a percentage of the cost (usually 20%) with your own available funds and the rest with a mortgage. This allows you to earn more when the property’s value appreciates compared to buying a less costly property without a loan.
To illustrate: imagine two properties, one at $100,000 and the other at $300,000. If both appreciate after a year at 5%, the former would appreciate by only $5,000 while the latter appreciates by $15,000. The same applies to properties you intend to rent out rather than sell years down the line. Leveraging does not always pay off, however, due to the uncontrollable factors that determine property value.
4. Choose Properties Wisely
That leads us to the last tip: make sure the property you’re investing in will be worth it. Of course, this is easier said than done, but there are tried-and-tested simple and risky ways to go about this. For the former, one could never go wrong with investing in a property in a prime location. For the latter, consider “flipping” a home or taking the cheapest property in a great location, investing in its improvement, and making a significantly greater buck off it. Again, flipping promises great returns but may not always deliver.
No matter the direction you decide to take in your choice of investments, with grit and a ton of research, you too can reap the bounty of the real estate industry like many before you have. To learn more about real estate investing, partner with Blue Hen Homebuyers. Call our offices today at 910-802-2222 to discuss how we can help.