The Complete Guide That Makes Becoming a Real Estate Investor Simple
If you want to be a real estate investor, now is the time to get in the game. You have to tread carefully, though. Even the most experienced investors lose their way and a lot of money.
Real estate site Zillow created Zillow Offers to fix and flip homes. The company bought thousands of homes to sell for profit. Instead, it’s writing off $569 million in losses.
It’s a huge black eye for the company, but you can learn from its mistakes. This guide makes it easy for you to get started in real estate investing.
What does it take to become a top real estate investor? Keep reading to find out how to become a real estate investor.
- Why Real Estate Investing?
Do you know why you want to invest in real estate? This is the core question to ask yourself because it dictates your investing strategy.
It also helps you make decisions about your investments as you build your real estate investment portfolio. You should take the time to set goals for your real estate investments.
Examples of real estate investment goals are to create passive income and to get one real estate property in a year.
- Learn About Economic Indicators
It takes a lot to understand the real estate market. The good thing about real estate is that it’s more stable than stocks.
Stocks are a liquid asset, meaning it’s easier to unload them. Stocks are volatile because people buy and sell as a reaction to economic indicators.
It takes a while for these indicators to impact the real estate market. Knowing them puts you in a position to be a few steps ahead of the rest of the market.
If you’re investing in real estate as a long-term rental investment, look at the rental affordability of an area. This tells you if the general population of an area spends over or below 30% of their income on rent.
If people spend more than 30% of their incomes on rent, they may have trouble making rent payments if they lose their job or face financial difficulty.
Broad economic indicators like housing starts, home prices, and construction spending tell you how many new properties are coming on the market.
- Know the Risks and Tax Changes
As you saw from Zillow’s painful example, real estate investing is far from a sure thing. There are a lot of risks involved.
Understanding them leads you to develop strategies to mitigate the risks of real estate investing. You could end up getting a property in a bad location.
Negative cash flow is another risk if you can’t rent a property for more than your true costs. The rental market might be slow in a location and you can’t fill your property.
Aside from the risks, there are tax implications of being a real estate investor. The rental income is considered taxable income.
On the other side, you can deduct expenses related to the real estate investment, such as maintenance and depreciation.
- Pick Your Investment Vehicle
There are many ways to invest in real estate and make money. The standard approach is to purchase a real estate property and rent it out.
Fix and flip is another tried and true method of investing in real estate. It still works, even though Zillow didn’t make money at it.
A real estate investment trust is a corporation that holds income-producing real estate properties. These trusts allow you to invest in large-scale properties like office buildings and malls.
Crowdfunding lets you pool your resources together with other investors.
- Hire Your Team
A smart real estate investor knows that it takes a village to purchase real estate investments. You need an accountant, general contractor, financial advisor, real estate attorney, and real estate agent.
You could work directly with a real estate company like Memphis Investment Properties. They assist investors at each step. Check out their process to see how they work with investors.
- Line Up Financing
Depending on your investment vehicle, you might need to finance it. If you plan to purchase properties outright, you’ll need the bank’s help.
Make sure you know how much you need for a down payment and what you can qualify for. Lenders usually require at least 20% for a real estate property.
- Purchase Your First Investment
When you purchase your first investment, you have to do your due diligence. For a rental property, calculate all of the expenses to purchase, maintain, and operate the rental unit.
Look at the economic conditions and see if you can rent the unit at a profit. If you plan to sell the property in the future, gauge where the real estate market is heading.
If you plan to invest in a real estate investment trust, you don’t just pick one and go forward. Look at the management team that runs the trust. Analyze the earnings over the past few years. Find out what future investments will be.
- Build Your Network
A solid real estate network is essential to becoming a great real estate investor. That’s how you’ll learn about new properties and opportunities.
Grow your business and grow your network. Seek out real estate conferences and groups in your area. Connect with other investors and real estate professionals.
Congratulations! You’re a Real Estate Investor!
Have you always wanted to be a real estate investor? Now is your chance. You can’t wait anymore because there are a lot of people getting into the real estate investing game.
Real estate investing is generally a stable investment, but you have to know what you’re doing. The housing market can be unpredictable at times, and you need to evaluate investments and market conditions.
Once you start generating passive income, you’ll need to upgrade your lifestyle. Check out the other articles on this site for the latest lifestyle news.