If you have grown up playing Monopoly, you know how important it is to invest in real estate to prevent yourself from getting bankrupt. You buy properties to generate rent and prevent bankruptcy.
These are the fundamental factors of investments and risks implied in Monopoly that you must do to win. Simple, isn’t it?
The goal of investing in real estate is to put money into an asset and let it gradually increase, leading to an increase in your money flow in the future.
A successful investment is making a profit, taking into account the risk involved. This can include the taxes to be paid, and costs of owning real estate, including utility bills, insurance, and maintenance.
Even though real estate comes with some incredible rewards, it also carries some substantial risks. One wrong decision can severely impact you and your family, which is why motivation, knowing the basics, and making the right decisions are crucial to receive a profit.
Compared to the stock market or mutual funds, the real estate market is not as volatile or risky, and in most cases. You have to start early by taking advantage of compounding interest.
Real estate is no impossible task; in fact, you need to stay true to a few basic rules which take you to the next step. Although there are risks involved, the rewards are amplified.
How Does Real Estate Investing Work?
Real estate investing can be a great way to increase your net worth through the power of appreciating assets. Real estate has the ability to go up in value over time while also paying out dividend or rent payments.
When you purchase a property, the goal is to hold it long enough so that you can sell it at a premium. When the property appreciates in value, you’ll be able to sell it for more money than you bought it for. That profit contributes to the overall return on your investment.
The second benefit of real estate is that you can rent it out and collect monthly rent payments. When set up correctly, this should cover your mortgage and create a passive income stream for you.
Real estate is dependent on the concept of cash flow. A positive cash flow is when your income is higher than what you spend (expenses). This cash flow form is a positive cash flow that everyone wants when they invest in real estate.
Pros And Cons Of Real Estate Investing
Pros
- Unique Tax Benefits: Investors are usually provided with tax benefits, and their rental income is not subject to taxation. All forms of expenses are deductible, such a depreciation, property tax, or mortgage interest.
- Provides A Steady Cash Flow: The terminology cash flow in real estate is when you are provided with a monthly income in the form of rent. This could provide you with a reliable revenue stream, which you could either pay bills for your real estate or reinvest in more rental properties.
- Less Risky Than Other Forms Of Investments: Stock markets are all about volatility. One day, you are a millionaire, the next day, you are bankrupt. Although not literally but stock markets require a lot of work and research compared to real estate. Compared to stock markets, real estate does not have any high short-term returns, but real estate is your best bet if looking for a long-term, less risky investment.
- Hedge Against Inflation: Inflation is the reality of purchasing power decreasing over time due to various factors such as money printing, economy, etc. Due to this, often, lousy investment values are eroded over time. As the price of a piece of the apple goes up, so does rent and property values, so real estate is an excellent long term investment considering inflation.
- Use As Leverage: Buying real estate has many advantages, especially in terms of leverage. According to Investopedia, “leverage results from using borrowed capital (debt) as a funding source when investing in expanding the firm’s asset base and generating returns on risk capital.” An example of leverage is a leather manufacturer who wants to borrow money for a new factory. He then uses debt financing to borrow money to buy the factory and increase the number of leather products he produces. With the low-interest market and some proper due diligence, you should be on your way to success.
Cons
- Potential Returns Less Than Other Investments: If you are looking to earn a significant investment return, u should start investing in the stock market because housing prices increase steadily. In fact, in the last 30 years, Big Mac’s price had a much more significant impact than housing, which sounds ridiculous, but it is actually true. This is no means for discouraging anyone from going ahead, but it is the harsh reality.
- Liquidity Of Assets: Getting cashback for stocks is super easy; you legit sell it and receive back what you have earned. Regarding real estate, it is not that easy to turn your property into cash. It takes time.
- Time-Consuming At Times: Although you may have heard about how you do not have much to do concerning real estate, you should put some effort into it. You need to spend time understanding and trying to learn about your real estate investments because if you do not know what you are doing, you could lose a lot of money. However, in recent times, many online services lift most of the responsibilities off your shoulders. One such service is known as Roofstock, which is an online platform where you can purchase properties. After which, you legit do not even have to do anything. This is because the property managers for Roofstock do all the job for you. The best part about Roofstock is that all properties are already vetted and provide a positive cash flow. So, for sure, check out, sign up, skim through it. Let me know in the comments below what you think.
- Real Estate Is A Long-Term Investment: May I remind you again that Real Estate is a long-term investment. Many people forget about this and become too impatient, whereas, with real estate, it is all about patience. The return on investments is greater 10 years later, compared to a year later. So, looking for something more futuristic Real Estate is your best, less risky bet.
- Managing Your Property Is Much Work: It may all seem like a fairy tale; you buy the property and rent it off. I assure you it is not. Whether you hire some manager for your property, running a property is a hassle. If you have rented it out, be sure to face overdue rent or some other maintenance problems. Unexpected problems do arrive, and you will have to deal with all of them.
Is An Investment In Real Estate Worth It?
Hell yes! Real estate has an insane amount of profit if you are willing to be patient and provide an extra income stream in the form of rent. So real estate is a smart and less risky investment and pays off almost all the time.
Of course, there is always risk when you are investing. Take the time to learn how to invest in real estate in a way that minimizes your risk. Don’t jump in too quickly since you may regret it if you buy an overpriced property.
However, investing in real estate can be a great way to create a passive income stream. It can help to grow your net worth, make more money, and put your family in a better financial position.
4 Ways To Make Money By Investing In Real Estate
When investing in real estate, there are a ton of ways to make money either passively or actively, including:
1. Appreciation In The Value Of Your Property
Over time, your property’s value will increase due to the market changes or the economy. You will make money over time and eventually sell it in the future. As time passes, some areas become extremely popular or busy, and if you have made the right decisions, you could have made a hefty profit.
For example, you own a property that used to be a bit quiet when you bought it. 10 years later, it is surrounded by busy shopping centers and restaurants, making it extremely valuable.
The market has fluctuated in recent times, such as the 2008 crash of the housing market and the great depression. However, despite all of this, real estate has managed to increase at a steady rate. Here has how much the median home value in the US has changed from 1940 to 2000:
Mind your real estate is a tricky business as one wrong investment could lead to a high-end loss. It is also unpredictable at times, making it a risky investment for some cash flow. Nevertheless, it is less risky than stocks or other forms of investments. All investments come with risks!
2. Collect Rental Income
When you buy a property, it does not mean you have to sit and wait 10 years for the appreciation to take place; there are many things you could do to create an extra income stream.
One is in the form of rent. Whether you have a storage unit, office building, a house, or an apartment, you could rent it out to generate cash flow, which could help you with maintenance and personal finance costs.
If your property is an area which is a popular tourist destination, you could target short term renter through apps like Airbnb, VRBO, and Flipkey. You could make much money from this if your property is well maintained and clean. Another platform you could use is HomeAway, which has more than 2 million properties worldwide for vacation rentals. They take a lesser commission and provides you with some top-notch facilities, so do check it out.
You could opt for a long-term rental option, which would provide you with a consistent income stream depending on the market. You should browse around the market check online platforms such as Facebook, Craigslist, and Zilpy (if you are looking to rent a place for vacation, this is the best platform).
Whether you opt for going for a long term or short-term option is totally up to you, but you need to consider all the factors when coming to a decision. Having an extra income source is a great way to set up an emergency fund that could benefit you in the future. Emergency funds have their own advantages, including improve budgeting, positive cash flow, and helps in unexpected instances.
3. Digital Investments
If you do not prefer adding the extra effort to maintain a property or manage it, you could opt for a digital investments option.
REITs
These are companies that operate your real estate. All you have to do is purchase a stock share in a REIT, which basically means you do not have to own a property. You can use online brokerage accounts such as M1 Finance, Robinhood, E*TRADE, Fidelity, or TD Ameritrade. By law, REITs are required to pay around 90% of their taxable income to their shareholders. This means the cash flow or dividends margins are quite large.
Crowdfunding
This is much newer to the investing space, where investors can access private REITs. The only drawback is that they could be riskier than the publicly-traded REITs since they are newer.
If you are looking to diversify your investments, this is a good place to start. Fundrise and DiversyFund are great platforms to check out since they only require a few hundred dollars to start investing in real estate.
4. Renovation Flips
The increase of home renovation shows a massive boom in the market for renovation flips. You can most certainly make much money in this, but it could often be challenging for beginners to navigate these waters first. You need to do much research on flipping renovated homes, and you need to know the market.
Unless you know what you are really doing, you could lose much money, so before running off to s house auction and buying one random research. My advice would be to go for a house in the nicest neighborhoods because that is where the value is high. These investments often pan out as you could sell a cheap ugly house after renovation for double or even triple the amount.
On paper, all of this sounds easy, but it requires a lot of work and research, and if you are willing to put all that, why should you not earn a profit.
Conclusion
No doubt, real estate is one of the most lucrative sources of an income stream and profit. However, like everything else, it does require some effort and work to be put into it. There is a small amount of risk, but most times, the result is actually lucrative.
There is always room for improvement, which is why trying to play it safe for your first few properties to start understanding the market. Building a team will also help you to make decisions easily with as much information as possible.
It would help if you learned how to make offers; other than that, it is not rocket science. Another thing to realize is that real estate is more so a long-term investment and should be sold in the long run for a substantial profit.
Let me know in the comments below what you think of my tips!
