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How To Work Out If You’re Ready To Invest In Real Estate

real estate investment

To understand the essential elements of real estate investment, the economics, and the risks involved, you can compare it to playing a board game like Monopoly.

If you’ve played the game before, you know that to win, you have to purchase properties, stay on top of your game, generate revenue, and acquire even more properties.

However, remember that simple doesn’t necessarily mean easy. Any real-life investment requires more than just following your guts and intuition.

You have to have specific knowledge and execute some action plans. Sure, investing can be straightforward, but expect to face hurdles, and if you’re taking a lot of risks, there will be some failures.

Our article serves as a guide for you to start the conversation about investing in real estate, which will most likely happen once you have bought your own home.

In fact, investing in real estate is often a retirement strategy. For example, when you’re ready to retire, you have options to liquidate funds by selling a property or more. How you choose which home to sell may be founded on location. For example, the question you may need to answer is should I sell my house in Jacksonville or New York or sell the rentals that are in other desirable locations to get the maximum sales price?

When you have rental properties, you have more options for funding your retirement.

Plus, it’s never too early to start investing in real estate. Start your education by researching keywords online, joining property discussion forums and using these tips and the valuable information on PropertyTalk.com.

Assess Your Financial Standing

If you want to invest and make your money grow, one of the popular options is real estate investment. However, it would be best to consider your overall financial picture before moving forward with it. Although there are ways to invest in real estate with no money, it’s still necessary to check your finances beforehand.

So how do you assess your financial health?

Assets

Calculate your net worth by adding all your assets and deducting your liabilities. Conveniently, there are some software and easy tools to help you with this.

Income and Expenses

investing numbers

Once you know how much you’re worth, it’s time to figure out how much you’re earning and spending. Next, figure out what your other expenses are and check where most of your money is going. Finally, work with a qualified financial advisor or accountant to work out how much you can borrow.  It always pays to know your financial position and borrowing power ‘before’ you start your rental search.

Now it’s time to evaluate your investment strategy once again. First, check and ensure that it’s on par with your current financial standing and your financial goals.  Then look at what type of investments work for you in your current position.

Purchase Real Estate Investment Trusts (REIT)

Real estate investment trusts (REITs) mean that you own, operate, and finance income-producing properties. With REITs, every investor can gain access to valuable real estate, which is somewhat similar to a mutual fund—an investment mutual fund pools investors’ money to buy stocks, bonds, and other assets.

In general, REITs follow a simple and straightforward business model. It generates income by leasing office space and collecting rent from its real estate, which is then paid out in dividends to shareholders.

Now you may ask yourself, are REITs an intelligent investment for you? So, here’s the catch. Historically, REITs have generated high, steady dividend income and capital appreciation based on their long-term stability. In addition, they diversify real estate portfolios, which lowers risks, and increases return on investments. These are what make REIT-based real estate investment attractive.

DIY – Choose Your Rental

Real estate prices vary from different locations, which is why it’s normal for investors to wonder whether to invest near their homes or in another area.

Begin evaluating the property listing markets near your home. Can you afford the rental type you want in your most desired area? If no, then consider surrounding areas or even further out if affordability is genuinely problematic.

Another strategy is to target smaller niches in your overall market. For example, consider a different type of home, e.g. condominiums, mobile homes, and tax liens.

Work With A Real Estate Agent

Once you’ve decided to become a real estate investor, speak to a local real estate agent in the area you want to purchase your rental. You need to communicate with many real estate agents in different locations to know how attractive the locations are for rentals.

Anticipate Risks

After acquiring property and having it leased, it doesn’t mean you need to collect monthly rent and check in on them only a couple of times a year. For one, at any time, you may be faced with a rental property sitting empty for months. Of course, you’ll be planning to minimize the vacancy rates of your rentals. Still, you also need to have a contingency fund or excellent cash flow to pay the financing repayments if a property is vacant for a substantial period.

Also, make sure you have funds for maintenance, repair and replacement. No home is maintenance-free, and it’s the Landlord’s responsibility to provide a home that is fit for purpose.

Final Thoughts

All investments incur risk.  Plus, there isn’t an investment that doesn’t need due diligence and the input of experts in areas like funding, property search and management.

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