Even though there’s less secrecy and mystery surrounding how to invest in real estate, many people still struggle with investing successfully. This is because, like every business or investment, real estate has its secrets. And every investor needs to understand these if they want to succeed.
If your dream is to build an investment portfolio, ensure they’re recession-proof, and have a steady stream of passive income on the side, the tips we’ll show you in this article will help get you started.
Although real estate investments often follow the fundamental business rule of buying low and selling high, there are various ways to go about this.
Invest in Real Estate
Start With a Rental
You’ve probably heard this before, but the reality is rentals are always popular. A rental property not only shows you the ropes of how to invest in real estate, but it also builds your wealth as property value always appreciates.
Also, returns on rental property tend to be pretty good thanks to a combination of consistent income, the availability of leverage when you want to purchase the property, and property value appreciation. Please note however that rentals can also have their issues.
For instance, you will need to maintain the property –this is why you should always keep aside 5 percent of rental income. Also, tenants sometimes leave which means the property will be sitting vacant until you can find one. If you don’t mind these issues, then rentals are great.
Fix and Flip
But be really smart about this one. This model has become popular thanks to multiple TV shows where regular investors buy a rundown or dilapidated property, repair or renovate it, put it up for sale and make decent money from the venture.
To ensure that your fix-and-flip project is worthwhile and profitable, adopt something called the 70 percent rule. This means that you need to make sure that the total cost of renovating and restoring the home doesn’t exceed 70 percent of the selling price you have in mind.
This way, you’ll make at least 30 percent profit when you sell. If it’s impossible to stick to the 70 percent rule, walk away from that deal and keep looking until you find something that works. Once you’re able to renovate and flip, reinvest that money into new deals and keep going until you reach your target.
Follow the Money
Recent housing trends have shown that people are more interested in moving away from densely populated city centers and downtowns to the outskirts and suburbs. If you want to invest in real estate right now, the suburbs are where the money is at.
For example, CEO Paul Ognibene from Urban Spaces saw this happening in his city and capitalized on the trend. He developed and built a multifamily condominium in the outskirts of the city that’s a 28-minute drive from downtown. And because of the demand for properties on the outskirts, the developer sold 90 percent of the units in the condo. And this was before the project was completed.
So, pay attention to where the money is going –this PwC report is a great place to start- and invest there.