- February 17, 2022
Managing Your First Real Estate Investment
Real estate has always been something of a stable market and, as of late, you’re either in it with a property of your own, or you’re outside of it, with the barrier to entry looking to get increasingly high. However, it might not be as hard to start right now as you may expect. We’re going to look at some of the options available to you.
The Landlord Route
One of the most traditional paths to real estate investment is to buy a property and then rent it out to tenants. As a landlord, you can make quite a lot of money, but you also have quite a lot of responsibilities. This includes repairs and maintenance on the property, ensuring that you’re respecting the rights of the tenants, and generally making sure the property is safe to live in. As such, landlords tend to have to get rather hands-on with their properties, often to the point that it becomes a second job or a part-time job during retirement.
Consider Getting Someone to Do It for You
While the buck always stops with you, there are those you can hire to take some of the responsibility of being a landlord, as well. Rental property managers or agencies do much of the work of landlording for you. This includes not only arranging for any necessary maintenance but even finding and managing tenants to live with those properties. The trade-off is two-fold. You need to make sure that you choose a manager that you can trust or your investment can be in danger. What’s more, any manager is going to eat into your profits, so you need to know how willing you are to sacrifice your margins.
Could You Rent Out a Room of Your Own?
If you don’t quite have the capital to buy a new property, but you don’t mind taking on the responsibilities of a landlord, there is another option for you. If you have a spare room in your home, you can rent it out as readily as a whole property. However, renting out a room comes with a whole set of other concerns that have to be addressed, such as what facilities in your home you both have to and want to rent out, as well as how you maintain the boundary between the personal and business sides of sharing a house with someone.
Becoming a House-Flipper
Aside from renting out a property, the other most traditional approach to investment is to buy a property with the intention of raising its value and selling it off again. Property prices are continually on the rise across the board, but the high-capital demands and the slow returns due to the nature of the game (waiting for prices to rise as high as you feasibly can before selling) are barriers to this mode of investment.
You Don’t Need to Go It Alone
There are routes to take if you want to start investing and want the benefits of property as an asset, but you don’t yet have the capital to get an entire property to yourself. Though not widely advertised, there are options such as real estate syndication. Part of the reason they’re not that widely advertised is due to their legal complexity, so a real estate syndication attorney is a recommended partner. Essentially, however, you put your money into a trust with other investors and, together, you buy a property to invest in. You own part of the property and the syndication’s sponsor manages the asset (or assets) on your behalf. It’s not easy to liquidate, but it can offer some decent returns.
Real Estate Without the Property
There is another option if you’re not able or willing to put the capital necessary to buy an entire property yourself. REITs, or real estate investment trusts seem somewhat like syndications, but there are some key distinctions worth keeping in mind. With syndication, you have part ownership of a full property, while REITs are shares in a property, without owning the actual underlying building itself. They allow for more flexibility in terms of selling whenever you like, but with the additional liquidity comes lower returns, on average.
Getting Into It Internationally
There are plenty of options in the domestic market if that’s the direction that you want to go. However, if you want to maximize your return potential, then looking at investing in international properties could be the way to go. For one, it allows you to tap into diverse markets so that even if growth slows in one, or there’s even a dip in property values in one country, you might see gains overall thanks to a better year in another. Furthermore, you can buy properties at a much wider range of price points.
Funding Comes First
No matter what kind of property investment you end up going for, it’s vital that you make sure that you have the funding you need, ahead of time. In many cases, this is will mean getting a home loan. For rental investments, you tend to require a larger downpayment on that investment. You should also get to know the other costs that can come with buying a property, as well. Legal conveyancing costs, inspections of the property, and paying for real estate agents need to be factored in, as well.
Know Your Margins and Your Payments
The money you pay towards the property isn’t going to stop once you actually own the property (or part of the property, if you go with a real estate syndication.) For landlords, you need to budget out how much you expect to spend on maintenance, repairs, as well as for any property management costs that come with it. Regardless of how you are investing, you should make sure that you have a good estimate of your profit margins based on either rental yield or the expected returns based on the value of your property before you sell it.
Consider What Kind of Insurance You May Need
There is some risk to be associated with any investment. While real estate is a lot more tangible than more speculative interests such as stocks and crypto, there is still a risk to it. As such, it’s worth putting the money aside to protect yourself from that risk to some degree. That is precisely the purpose of real estate investment insurance. You might not be able to recover the entire value of an investment once you factor in the costs of the insurance itself, but you can make sure that you’re not left destitute should something such as a natural disaster destroy your investment.
Pay Close Attention to the Markets
Despite the fact that real estate is relatively safe, and has been for a long time now, you should make sure that you’re always paying close attention to the markets. Not only should you be looking for signs of development and an area on the rise, but you should make sure that you’re ready for any dips in the market, as well. If you have too many investments that you can’t get liquid in easily because, for instance, you still owe a lot on a mortgage, then you do leave yourself vulnerable to things like the housing market collapse seen in 2008.
How you manage your first real estate investment is important. Starting with a success can you see you rolling much the same way with all that follow. Keep the tips above in mind but, above all else, keep up with your own research. There’s no copy-pasting your way to investment success.