Investing in real estate can be a highly rewarding opportunity. There are many opportunities and strategies that can be exploited in real estate investment, from wholesale buying of properties to property development to the leasing of properties. However, there are risks in the industry, as with anything that has profit potential. If one is new and treading into unfamiliar territory in the real estate business it may be useful to check out this how to invest in real estate guide.
Investing in real estate has always had a large opportunity for profit. In general, when investing in real estate. It is our goal to put money into a property and allow the value of said property to increase so that more money can be had in the future. The returns on this need to be enough to cover the risks, taxes, and other associated costs such as maintenance and insurance. It can get quite complicated pretty quickly, so having a good base of knowledge to start on is essential.
There are many different guides on investment and where to invest in the real estate market. However, it is also important to understand your real estate investment capacity before you plunge into all of this.
Real Estate Investment Advisory
There are a couple of things to be mindful of when getting into real estate or investing generally into anything.
Risk Appetite
This is the biggest factor one considers before investing. If you do not have the capacity to take risks, then going into ventures that are less risky may float your boat. For example, a risk-averse investor would rather invest in T-Bills rather than buying stock.
In the case of real estate, an investor looking to take the risk can start a “buy and flip” business where they buy properties cheaply, invest in them and flip them for good profits. There are a lot of risks involved in this hence those who are risk-averse might feel that renting out the properties is a much more stable investment. Of course, more money needs to be poured in to buy property but at the end of the day, you do get a stable stream of income.
Access To Finance
It is much riskier to invest your own money into a business rather than working on a loan. However, with loans, you need to repay back more money than you had initially borrowed. You may find that you need more money than you initially thought you required when purchasing real estate for investment purposes. Depending on the situation, you can either pour your own cash into it, borrow some loan or have a mixture of both. Remember, not all debt is bad and debt is a great way to expand your business quickly. Even in stocks, you will find margin trading where individuals use debt to buy more stocks than they could afford.
Diversification
Diversification goes a long way in protecting your investment portfolio from a lot of factors outside of your control. If for example, you had two properties, one in Texas and the other in New York. If the Texas real estate market takes a hit, you have the New York real estate market to protect your portfolio from a 100% hit. The risk is spread.
Now, if you were to have both the properties in Texas and an economic recession takes place in the state, both your property value will go down affecting your real estate portfolio badly. There is a very rare chance of two states going through an economic recession at the same time unless the entire country is hit by the recession.
