The Ultimate Guide on How to Invest in Real Estate

Invest in Real Estate

What do 90% of millionaires have in common? They built their wealth by investing in real estate. Real estate is seen as a safer investment than the stock market or crypto.

It’s an investment that almost always appreciates in value. You also have a tangible asset that you can use to generate passive income.

It’s the best way to start to build wealth, but not every real estate investor is successful. Many end up using the wrong strategies or buying the wrong properties.

They never learned how to invest in real estate. They watched a TV show and thought that they could copy what they saw on TV and be successful. It’s not the best way to lose thousands of dollars.

There’s so much more to investing in real estate. Do you want the investing tips that work and will help you build wealth?

Read on to learn how to invest in real estate and build your real estate empire.

Get a Team of Experts Together

The best real estate investors are humble. They recognize that they don’t know everything in real estate. They seek out every chance they can to learn about real estate.

Find yourself a real estate investing mentor. This is someone who can show you the ropes of real estate investing. They’ve made mistakes in their early investments and you can learn from them.

How do you find a real estate mentor? Start networking. Attend meetings for real estate investors and get to know the people there.

When you do find someone to mentor you, be specific about what you want from the mentorship and how much time it takes.

Other people to have by your side include a real estate agent, real estate attorney, accountant, general contractor, property manager, handyman, and property inspector.

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Pick a Real Estate Investment Strategy

Most novice real estate investors think that the only way to invest in real estate is to purchase a rental property. That’s one way to go about it, but there are several real estate investment strategies you can use to build your portfolio.

Another common investing strategy is the fix and flip. This is where you purchase a distressed property, fix it up, and resell the property at a profit.

This is a tough strategy to master because the numbers have to line up. You have to purchase the property well below market value.

You then have to invest money to fix the property and sell it at a fair market price. It’s not easy to make a profit because one issue in the renovation could eat up your profits.

Real estate investment trusts (REITs) are companies that own commercial real estate properties, such as malls and office buildings.

They operate like investment funds. You invest in the trust and receive dividends on a regular basis, either quarterly or annually.

Real estate investment groups (REIGs) have a number of investors pool their resources together to purchase real estate properties. You can start your own REIG or turn to crowdfunding sites to find other opportunities.

The advantage of REITs and REIGs is that you can invest in real estate without having to do the hard work of being a landlord.

Understand Leverage

You might hear about leverage from other real estate investors. Leverage is where you use someone else’s money to buy real estate properties.

The leverage ratio is expressed as a percentage of the money borrowed. Let’s say that you put down 25% and borrow 75% to purchase the property. You have 75% leverage in a property.

Keep in mind that the more leverage you have, the more risk is involved. Lenders are willing to let you use leverage, but they ask for the property as collateral.

If you miss the payments, you’ll lose the property. Leverage is good because it increases your return on investment, but you have to use it carefully.

Get Your Finances in Order

Before you go out and purchase your first investment property, you have to get your finances in order. This is something you should do months in advance of buying real estate.

Check your credit score and save up enough money for a down payment. Most investment loans require 20% or 30% down, though you might be able to get an investment loan with a lower down payment threshold.

Look at your loan options and get the right one for your investment strategy. Fix and flip investors find a hard money lender for hard money loans. These are short-term loans that use the property as collateral.

If you already own real estate, a home equity loan can give you the cash you need to purchase another property.

You can always use a conventional loan or a private money loan to finance the transaction.

Purchase Your First Investment Property

It’s time to purchase your first real estate property. Keep your real estate investment strategies and goals in mind as you begin your search.

Check the location where you’re considering buying real estate. Research it thoroughly to make sure it’s a growing area. You don’t want to invest in an area that’s going to decline in the next few years.

A good area for investment properties has low property taxes, low crime rates, and plenty of parks, shopping, and restaurants nearby.

The area should have a diverse economy because if one area lags, another area of the local economy can still create a pool of potential renters.

This is where the help of a mentor and real estate agent can make a difference. They can help you locate properties and run numbers to ensure it’s a profitable investment.

Investors bought over 90,000 properties last quarter. You’ll get the help you need to compete against other investors and get the best real estate investment.

When you come across a real estate investment property, create a plan for it beyond the investment strategy. Have a plan for how long you want to hold on to the property and what your exit strategy is.

For instance, with a fix and flip, you’ll hold onto the property for three to six months before selling the property. That helps you stay on track with your larger real estate goals.

Property Management Strategies

Is your real estate investment strategy to rent the property? You have to keep in mind the property management aspect of the deal.

Some investors choose to handle that themselves. It entails a lot of work, and it can be your full-time job as you buy more properties.

You have to take care of repairs, maintenance, replace appliances when they break down and handle emergencies at all hours.

As a landlord, you have to advertise the property, screen tenants, accept and handle deposits, and stay within all housing laws and guidelines.

There is a lot to know and understand about being a landlord. If you go into real estate because you wanted to generate passive income, this isn’t the road to travel.

Employ the services of a property management company. They have the infrastructure in place to do the required work. They also have the knowledge to comply with landlord-tenant laws.

It’s normal to be reluctant to hire a property management company because it’s an additional cost. They’re very reasonable for the services they provide, only 8% to 12% of the rental income.

For the time you save, it’s a fair deal.

Make Taxes Work for You

Treat your real estate investment like a business. As a business owner, you’re able to write off investment property expenses on your tax returns.

You’re able to deduct property taxes, depreciation, mortgage interest, maintenance, repairs, and insurance.

Investors can defer capital gains taxes by selling a real estate property and buying another one. This is done through a 1031 exchange.

It’s a complicated transaction, but it could save you a lot of money on taxes when it’s time to get a new investment property. Keep in mind that this works for rental properties, not fix and flips.

It’s always best to work with an accountant with experience in real estate investments. They’ll make sure you take advantage of the tax code and file accurate tax returns.

The Guide on How to Invest in Real Estate

Investing in real estate is a safe and stable investment that should appreciate over time. It doesn’t always work out that way for investors, though.

This guide walked you through the steps of how to invest in real estate. You just learned how to choose your team, the right real estate investing strategies, and investment properties. You also learned the top tips to save money on taxes and leverage.

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