The Complete Guide to Creating a Real Estate Investing Strategy
Real estate investment is all about making money now so that you may make more money later. In the US, investing in real estate can be a true wealth-builder.
First, you’ll want to target a specific return on investment (ROI), which is the amount of money you earn after deducting your investment costs and any taxes you owe. Utility, maintenance, and insurance fees are just some of the additional expenses that come with owning a home.
Once you have a firm grasp on the fundamentals of investment, economics, and risk, investing in real estate may be a breeze. Purchasing real estate, avoiding bankruptcy, and generating income from rental properties are all steps you take to further your real estate investment portfolio.
Read on to learn about the foundations of setting up the right real estate investing strategy for your needs and preferences.
Real Estate Investing Strategy 101: Understanding the Four Categories
By investing in real estate, you may make money in four different ways.
One of the most common methods of profiting from a real estate investment is one of four following categories.
1. Appreciation of Real Estate
Due to a shift in the real estate market, this is what happens to a property’s value.
The land surrounding your home might become scarcer or more crowded, for example (for example, if a major shopping center were to be built nearby).
The property may be more marketable because of the improvements you made to it. Appreciation in real estate is a difficult game to play since it is difficult to forecast. It carries a higher level of risk than investing for future cash flow.
2. Profits from Cash Flow
An apartment building is an example of a property that may be purchased and operated as a business.
A steady flow of revenue from rent payments is then yours to keep. Other forms of real estate, such as storage units, office or retail buildings, and rental dwellings, may also provide cash flow revenue.
3. Real Estate-Related Income
Brokers and other real estate professionals often make this kind of money.
When they assist a customer purchase or sell property, they may earn a commission on the transaction. A percentage of the rent is occasionally given to property management businesses in return for managing the day-to-day activities.
4. Ancillary Real Estate Investment Income
A lot of people see this as a great way to make money.
Vending machines in office buildings and laundry facilities in rental flats are examples of ancillary real estate investment revenue. As a result, this entails the creation of small enterprises inside a larger real estate deal.
They allow you to profit from a group of clients that are semi-captive to your company.
Investing in Real Estate: Common Tactics
Once you’ve nailed down which of the four overarching strategies you want to follow, you can add in one of the following tactics.
We’ll break them down one at a time.
The Fix-and-Flip business model is based on buying undervalued homes, making necessary repairs, and then flipping them for a profit. Watching the HGTV programs on house flipping, this is what they’re doing.
For the first several years of your real estate career, you can rely on this approach to help pay rent and save money for future ventures. You can check out this article for more information about how to get the initial funding.
Investment property wholesaling is the practice of acquiring bargains and then immediately reselling them for a profit. The key to success in this industry is mastering the art of marketing and bargaining.
Those who excel in sales will like wholesaling. Nevertheless, if the thought of sales makes you shudder, I’d consider an alternative approach.
Putting Money into Real Estate Investment Trusts (REITs)
With a REIT, investors may have exposure to real estate without having to make a typical real estate deal.
A REIT is formed when a company (or trust) acquires and manages income assets using the funds provided by its shareholders. Like any other stock, REITs may be traded on the main stock exchanges.
In order to preserve the REIT classification, a company must distribute 90% of its taxable income in dividends to shareholders. Without paying corporate income tax, REITs share their after-tax gains as dividends rather than having to do so, as would be the case with a conventional firm.
REITs, like traditional dividend-paying equities, are an excellent choice for investors looking for a steady stream of dividend income.
Real estate investment trusts (REIT) provide investors access to non-residential assets, such as malls and office buildings that are often out of the reach of individual investors.
Because REITs are exchange-traded trusts, they are extremely liquid and easy to buy and sell. You won’t need a title transfer or a real estate agent to get your money back. This more organized form of the real estate investment group is what REITs really are.
Joining Real Estate Investment Groups (REIGs)
People who wish to own a rental property but don’t want to deal with the day-to-day management issues might benefit from real estate investment groups (REIGs). It is necessary to have a financial buffer to invest in REIGs.
Investments in rental properties are made via REIGs, which are tiny mutual funds.
Investors may join a real estate investment group by purchasing or building a set of apartment buildings or condominiums from a firm that owns or constructs them.
Regardless of how many units an individual investor owns, the corporation that administers the investment group jointly maintains all of the apartments, which includes advertising vacancies, conducting tenant screenings, and doing maintenance. As compensation for managing the property, the corporation gets a portion of the monthly rent.
Rent is pooled in all units under a normal real estate investment group contract so that the investor is protected against vacancy.
For this purpose, even if your apartment is unoccupied, you will still get a little amount of money. For as long as the pooled units’ vacancy rates remain under control, there should be enough revenue to pay expenses.
Making the Most Out of Real Estate Properties
Investing in real estate is a great way to broaden your financial horizons, add variety to your portfolio, and begin thinking about your golden years (or other financial goals).
You may get started on the path to real estate investing success by setting up the right real estate investing strategy. Next, you should check out our real estate section for more tips and advice on how to achieve your target ROIs.