Real estate, in general, is a great investment option. It can generate continuous passive income and can be a good long-term investment if its value increases over time. You may even use it as part of your overall strategy for building wealth.
Paying in Cash
Many financial experts warn against borrowing money to purchase investments. You should consider this before buying an investment property. If you cannot afford to pay cash for the home, you at least should be able to afford the loan payments, even without rental income. Having tenants can be unpredictable. You may experience times when you have no tenants at all for the property. If you cannot afford the loan payment without rental income, this could become more of a financial burden rather than a means to build wealth. Furthermore, if you cannot make the loan payments, this could harm your credit, which will cost you money in the long run.
Planning All Expenses
When buying real estate for investment purposes, you must account for expenses such as taxes, utilities, maintenance, and repairs. Often, it is easier to rely on a rental company and let them handle things like repairs and collecting rent. Although this will cost money, it will help alleviate the burden of owning rental property. Especially if you do not have the time to do everything that needs to be done on your property, using an agency is a good option.
Carefully Research the Property
If you are buying land that you plan to sell later, you should carefully research the land contract. Know if there are any new roads planned near the land you are buying and consider how this will affect the property value. Also, ensure there are no liens on the property. You might also want to look into matters such as neighborhood comparisons, including whether the area is developing and other external factors that could affect the property’s value.
Starting Small
Some real estate investors start by buying a duplex or a home with a basement apartment, then live in one unit and rent out the other. This is a good way to get started, but keep in mind that you will be living in the same building as the other tenant. House trading can also be a way to start investing in real estate without a lot of initial capital. Additionally, when setting your budget, you will want to make sure you can cover the entire monthly loan payment while living comfortably without needing the extra rental income. As you become more comfortable being a property owner and managing properties, you may consider purchasing a larger property that can generate more income. Once you own several properties, it becomes easier to buy and manage more properties and achieve a greater return on your investments.
Frequently Asked Questions (FAQs)
What is a Real Estate Investment Trust (REIT)?
A Real Estate Investment Trust (REIT) is a company that owns and manages or finances income-producing real estate. Individuals can invest in a REIT and receive dividends from their investments. REITs own the underlying properties, while mortgage REITs do not own the underlying mortgages. Instead, mortgage REITs own debt securities that are riskier. Hybrid REITs combine equity REITs and mortgage REITs.
How can you invest in real estate?
You can follow several paths to start investing in real estate. You can buy a multi-unit property and rent out the other units. You can also purchase a single-family home and rent it out. Some investors buy properties, renovate them, and sell them for a profit. You can also rent out rooms in your home to build funds and invest in more properties. REITs also allow you to invest in real estate without needing to provide cash to purchase or maintain property.
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Sources:
Quicken Loans. “Buying an Investment Property: Frequently Asked Questions.”
Federal Trade Commission. “Having Trouble Paying Your Mortgage?”
Quicken Loans. “Should You Use a Property Management Company for Your Rental Property?”
Discover. “6 Things to Know About Property Titles.”
Source: https://www.thebalancemoney.com/is-real-estate-a-good-investment-2386365
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