Did you know that real estate investment is a popular strategy for building wealth and securing your financial stability? By investing in properties to generate income, you’re investing in yourself and your future and providing others with stable places to live. Many people prefer to rent over owning a home outright, as it allows them to work together with their landlord to keep the property maintained, so they have more freedom to pursue other interests and hobbies.
Real estate investment can be passive or active based on your preferences. In Active investments, you become the property’s landlord. You handle contracts, screen tenants, find renters— anything your lease agreement delegates to a landlord. Passive real estate investment is when you turn some of your profits around to hire a property management company. You trust them to run things on your behalf and enjoy the extra income. Both styles have their benefits and their downsides.
Benefits of Real Estate Investment
The main draw of real estate investment is the steady income that comes from collecting rent. Part of this income will need to cover the property’s payments and expenses, but the rest is yours to keep. If you keep up with the property and it’s in a good location, you can slowly increase rent to generate more income. Real estate appreciates over time, especially if you slowly work to improve the property. This means you can generally sell for more than you purchased, providing an excellent ROI without the hassle of being a landlord.
Real estate investors also profit from tax benefits and portfolio diversification. Most of your property expenses count as deductions since they are also business expenses— this can include your mortgage interest and property taxes. Portfolio diversification also protects you against losses in other investment areas. Real estate is generally less volatile than stocks, so the income is more stable. You also get to have more control over your investment. As a property owner, you get to make decisions like renovation or rental rates that impact the value and income potential of your properties.
With this control and stability, real estate investment is one of the safer options for your personal financial planning.
Forms of Real Estate Investment
There are multiple ways to turn real estate investment into a venture that suits you. Some investors enjoy acting as landlords. They make their income while maintaining the property, signing contracts with tenants, and the works. Other investors prefer to flip properties for sale. Flipping involves purchasing a property, generally through foreclosure options or short sales, investing time and money into renovations, and then selling the property for a profit. Then there is the passive income approach, where the property owner outsources landlord duties to a management company and enjoys some extra padding in their wallet.
No one path of investment is the same. Through a bit of research and some trial and error, you can find the investment strategy that works best for you.
Financing Your Investment
Real estate investment does include some large commitments. If you’re into income-generating properties, you will likely be seeking financial assistance from lenders. Your best option is to work with a mortgage broker like the experts at District Lending. These partnerships can get you access to lower interest rates and down payments, making it more accessible to finance multiple properties and grow your portfolio. A broker will help you find the best rates so you can focus on growing your investments and getting the best returns.
Getting Started
For your few first real estate investments, you should work with an agent. Real Estate agents know the ins and outs of purchasing, renting, and selling homes, and they can help you understand what makes up a good contract. As time passes, you may choose to continue working with an agent to avoid the hassle, or you may decide to handle your own purchases and sales once you understand the process.
You should also retain a lawyer for advice on leasing contracts and the landlord requirements in your state. They can help you make sure all of your rental agreements are above board, and you continue to comply with state and federal law, saving you time, money, and hassle in the long run. Should you run into any legal trouble, they can also represent you and help you build a solid defense.
Approach investing in your first property the same way you approach investing in a home: get your financials in order first. Work with your mortgage broker to find out what you can afford, then find a real estate agent who can help you find properties within that range. They may also have resources to help you calculate any necessary repairs before renting. Once the property is in your name, tackle any of these improvements before you start advertising for tenants.
Like any investment, real estate is full of risk and reward. You want to be sure you have sufficient funds set aside to purchase the property, make any improvements necessary, and maintain it while you wait for renters. But once you have a handle on your first property, there is nothing stopping you from expanding. Whether you want to stay with a few properties or build a real estate empire, you will have your foot across the starting line.
