Imagine your wealth lying dormant in your bank. With the rising inflation and currency depreciation, your wealth will automatically lose its value. The next day, one of your friends or family members tells you to invest. But invest where? Andrew Carnegie, one of the richest men in American history, had said that 90% of the millionaires got their wealth by investing in real estate. That was said a long time ago. But it still holds true. According to CNBC, nine advisers at the Oracle that they interviewed claim that real estate helped them become a millionaire. Historically, real estate value has only risen and there was not a moment in modern history that could indicate a significant drop in its value. As compared to stock markets that are highly volatile (and also more profitable), real estate investment offers a tangible source of ROI and income.
Inevitably, these statistics pose the following questions: Should I start investing in real estate? Do I need to hire a real estate agent or become one myself? Which type of properties should I Invest in? Or more specifically, which city is the best for investing in real estate? In this article, we will dive into the world of real estate and explore every aspect of real estate from investments to strategy.
Preliminary stage
Real estate investment is not a rocket science that needs to be learned by joining essentially an academic institution. Instead, investment of any sort, in this case, real estate, should be done as early as possible. Before jumping to real estate investment, a person should first look into statistics and metrics. Often, it has been observed that the real estate agents or investors who have a firm grasp of property knowledge and awareness of the socio-economic trends of the region, tend to come top in the competition. So, updating your knowledge regarding the market trends carries utmost importance if you want to stay in this game.
Another important aspect to keep in mind before jumping on the real estate bandwagon is to develop a business model or a plan because it is extremely important that you approach this venture as a business professional. It is one of the most important business documents in a written form that explains what your goals are and what do you want to achieve after a certain period of time. More specifically when speaking in terms of real estate, how much do you want to invest, how many properties do you want to buy and sell, which type of customers do you want to target, etc. Hence, these are the few basic things you should be clear about before starting your real estate investment business.
When it comes to real estate, developing a niche is as important as the above-mentioned steps. Single-family, Multi-family, Condominiums; you name it. Each carries its own pros and cons e.g. multi-family requires more management efforts as compared with single-family units. But where you want to invest depends entirely on your business goals and strategies.
Building a Network
Networking is important not only when it comes to real estate investment but for any professional. The network helps you broaden your social circle, helps you get informed on the latest market trends, and establishes connections with important persons. Often through networking, you might come across a potential partner, mentor, or even an investment company that might help you in expanding your status in the industry. Going to a seminar or conference, meeting people in investment clubs, and even interacting online through LinkedIn or Facebook, are great ways to maximize your outreach and win lucrative real estate investment deals.
How to Invest?
The most classic example of investing in real estate is buying a property and renting it, eventually resulting in a stable cash flow in the form of rent. However, this way is old and might not be as profitable as you think it might be. In this age, several options and ways have opened up that can help you in creating long-term wealth through real estate investment.
Real Estate Investment Trust (REITs)
REITs are companies that hold commercial assets such as hotels, apartments, office buildings, etc. Instead of buying a property, you buy stocks of these companies from your brokerage account and the dividends on the profits are made regularly to you. These dividends often tend to be high. Two main points that make REITs one of the best real estate investment options are.
- They are traded on the public stock exchange.
- REITs do not have to pay corporate tax.
Flipping a property
Real estate flippers are a separate breed of real estate business. Instead of adopting the common methodology of buy and hold (or buy & rent), flippers buy a real estate asset for a shorter period of time, maybe even less than 3 months. The idea is to invest in a market where one sees potential in growth, makes repair and renovation work to drive up its price even further, and then sells back to a new investor. It has several risks associated with it. As the investor does not have enough cash to pay up the mortgage fees but if done right, flipping is one of the most lucrative real estate investments.
Long story short, real estate investment comes with its own risks and pitfalls yet, it is beneficial for diversification of your wealth portfolio and mitigates market shocks such as recession or hyperinflation. Most often, when a stock market goes down, property’s value tends to rise up. Real estate investment can go from as simple as buying & renting homes to making strategic asset portfolios in order to enter the Big Boys league. Often hiring a real estate agent goes a long way in making an informed decision regarding real estate investments and saves you from loads of market analysis studies. So, at the end of the day, it all comes down to your initial business plan. If you want to keep a passive income source, just keep a simple business plan, and invest as early as possible.