What’s America’s favorite long-term investment vehicle? It’s not the stock market or conservative mutual funds. It’s real estate.
About 31% of Americans think real estate is the best long-term investment strategy. They’re often right with real estate prices jumping over the last couple of years.
If you’re thinking about investing in properties, you might think that it’s a simple way to make money. You buy low, sell high and do a little work in between.
Real estate investing isn’t as easy as it looks. You need to know what to look for in an investment property and build your business.
Read on to learn how to invest in properties and save yourself from any housing market crash 2023.
- Be Ready to Be a Landlord
What’s your plan for real estate investing? Most real estate investors decided that they want to buy a couple of residential real estate properties and don’t realize the work involved.
You have to advertise the property, maintain it, find the right tenant, deal with late rental payments, and so much more.
The danger of being a landlord is that you essentially create another job for yourself where you’re overworked and underpaid. That’s what you’re trying to move away from.
It’s OK if you’re not ready or willing to be a landlord. You’ll have to hand your properties off to a property manager to take care of the work. You have to work the property management costs into your profitability calculations.
- Research the Market Before Investing
You need to research the local market before you make a purchase.
Right now is a great example of knowing the market. The real estate market has been insanely hot because of low-interest rates and limited supply.
Those factors drove home values up by as much as 71% in some areas. Is this a great time for investing in real estate?
It depends. If you’re looking to profit from the sale of the home, your timing might not be that great. You can expect home sales prices to decrease as inventory picks up.
On the other hand, if you want to hold on to the property for several years and rent it out, you can see a healthy profit. As home prices stay up, more people are forced to rent.
That increases demand in the rental market, and you can charge more for rent.
You have to look at these options before you decide to make a purchase.
- Property Types
What kind of properties do you want to invest in? You can invest in residential properties, office buildings, or retail spaces.
Each property type requires a specific level of expertise. For instance, if you’re planning on investing in office buildings, you need to know how to finance a large purchase.
- Investment Types
The great thing about investing in properties is that you’re not limited to buying and selling real estate on your own. You can be part of a partnership that buys and sells properties.
There are other investment types that you should consider as well.
If you’re a hands-off person and want your money to grow, you can leverage a real estate investment trust. This is like buying real estate stocks.
What if you don’t have a lot of money to invest in real estate? There are crowdfunding platforms that let you invest in real estate properties without a lot of money to invest.
Fundrise, PeerStreet, and Realty Mogul allow you to invest in properties without a high barrier to entry. You can invest with as little as $500.
- Manage Cashflow
You need to treat investing in properties like a business. That means you have to carefully track your income, expenses, and cash flow.
These costs should be estimated before you invest in property to guarantee a return on investment.
- Tax Advantages
The main reason why real estate is so attractive is that there are dozens of tax advantages. You can write off depreciation, mortgage interest, insurance, and any other expenses to maintain and manage the property.
If you’re ready to sell your property, you have to keep capital gains taxes in mind. You could pay quite a bit in taxes on the profit.
The tax code does have a way to defer capital gains tax payments on real estate investments. You can leverage a 1031 exchange to sell your property and invest in a new one and hold off on capital gains taxes.
- You Need a Team
It doesn’t matter what type of property you invest in. You need a team of mentors and advisors to help you maximize your investments.
You can’t pretend that you know everything about real estate, getting access to capital, and property maintenance. If you’re dealing with tenants, you need to be up to date on landlord-tenant laws.
You should surround yourself with experts in financing, commercial real estate, and remodeling. You could also work with a company like Max Benjamin Partners to give you commercial real estate insights.
It’s also helpful to get a mentor as you start your real estate investing career. Set goals for yourself as a real estate investor. Look to people who achieved the things that you want to accomplish as a real estate investor.
Reach out to them or join real estate investing groups for support in your next transactions.
How to Be Smart When Investing in Properties
Real estate investing is a great way to build wealth and gain true financial freedom. It’s not guaranteed, though. There are plenty of investors that lost money because they didn’t know what they were really getting into.
The tips in this article showed you what you really need to know before investing in properties. You can take that knowledge and become a successful real estate investor.
Check out the Real Estate section of this site for more real estate insights.