5 Real Estate Investment Tips

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5 Tips to Help You Understand Real Estate Investments

Real estate investments can help you generate immense income with minimal risks. However, the investment is also immense compared to other profit-making arenas. The exciting and unique quality of real estate investments is that you can create income passively or actively, or both. Passive income occurs when you buy and sell properties after a while. The active income is made through flipping contracts. It might seem like a lot of work initially, but once you get the hang of it, you will find it enjoyable.

How to invest in real estate when you don't have liquid cash

Trading your assets such jewelry, cars, or something on similar lines
By acquiring someone else's mortgage payments (in distressed situations)
Getting a partner who can invest cash
Borrowing a loan from the bank
Taking a home equity credit

5 TIPS TO GET SUCCESS FROM REAL ESTATE INVESTMENTS

Renting out Potential Properties

This is one of the best ways to make passive income through real estate investments. Invest in properties that you think have the potential to be rented out. Rentals have minimum risks since it does not experience significant dips when the economy is down. Everyone needs a place to live or a place to work. But don't limit yourself to residential properties; there are other options such as commercial and industrial spaces. In fact, commercial and industrial properties can get you more rent than most residential places.

You can experiment Investing in Mortgage Notes

Investing in mortgage notes is also an excellent option for people looking for passive income. All you need to do is purchase a mortgage note, and in return, you will receive a monthly payment that includes your principal and interest. Most real estate enthusiasts prefer buying mortgage notes over renting out a property because there is no need to manage or run a place like a landlord.

Another benefit of investing in properties located around the country is that you don't have to deal with or handle the different real estate rules such as taxes and licensing of each place. Since the mortgage notes include the loan duration, you will know how long you will receive the payments; and it could be as long as 10 – 30 years. You can, however, increase the value of your mortgage note by taking over the note from a distressed holder.

Flipping Real Estate

Another quick and easy way to make money through real estate is by flipping properties. Flipping real estate means you buy a potential property, make repairs and renovations, and then sell the place for a larger amount. Most investors are drawn to this type of investment, but you should know that there are high risks in this method. If you are not confident about the renovation and repair costs, you might end up losing a lot of money. Another issue is that most homebuyers prefer to renovate according to their likes and tastes, so an already beautified property might not be very appealing.

Make money through Real Estate Investment Trusts

If you don't want to go through the trouble of buying and managing a property, you can try your hand at real estate investment trusts. These trusts (REITs) allow investors to finance a property but without the need to buy or manage it. Along with properties, you can also invest in mortgages. You can expand your investments by buying shares in a particular market niche. Since REITs don't correlate with other equities, the value of these shares depends entirely on the real estate market and not on the stock market.

Real Estate Funds as Investments

These are mutual funds. You put in your money with other similar investors into an actively managed real estate fund. Different companies own shares in such funds. Some of them even have direct real estate property investments.

The values of these funds increase through appreciation and should not be seen as a source of short-term income. If you are interested in getting into real estate funds, you should explore the options and narrow them down on a solid fund. A diversified, expansive, and low brokerage fund is the best option.

THE BENEFITS OF HAVING AN INVESTMENT PROPERTY

1. You'll receive a passive source of income

One of the main reasons why real estate investment is much sought-after is because it guarantees a steady passive income. Depending on the neighborhood and your property's condition, you can fix a rent price that will fetch you a fortnightly or monthly income.

2. You'll obtain capital gain as the value of the property appreciates

If you are able to purchase a property in a decent location that has the potential for growth and development, your return on investment is likely to increase for the years. When you are looking at properties, keep in mind that along with the location, the house's structure and condition are also going to influence its value.

3. You own a physical asset

Shares and unit trusts are intangible, meaning you can't see or experience them. But when it comes to a property, it is a physical asset that can be a source of immense joy and pride. It feels more comfortable and offers more confidence to own a tangible asset than an intangible one.

4. You get tax benefits on real estate investment

Investment property owners can benefit from several tax deductions. You will get tax deductions on the money you spend to create your rental income. But you need to seek proper tax advice from professionals when you are buying an investment property.

5. You have direct over your asset

Property is an asset that you can manage directly. You can hire someone to manage your property, but most landowners like to manage and take care of the properties by themselves. You are in charge of running and maintaining your space, and so you can ensure its peak performance.

There are both benefits as well as risks in property investment. But compared to all other investment options, the risks are comparatively low. Depending on your situation, you can decide whether a real estate investment is suitable for you or not. Below are some of the few risks in property investment.

RISKS IN PROPERTY INVESTMENT

Property Damage

Properties are vulnerable to damage, and this is a risk. If unexpected damages occur, it can lead to expenditure which in turn could affect your profitability. Some of the damage risks include natural disasters, robbery, or even damage caused by tenants. Thankfully, you can take care of this issue by protecting your investment by getting an insurance policy associated with real estate investments.

Lack of Liquidity

Liquidity is the ease with which you can turn your investment into cash. When it comes to real estate, there is a lack of liquidity. This is because you cannot sell a property as soon as you need cash, and if you sell a property in haste and under pressure, you will incur a loss on investment.

Risk of Debt Gearing

This is a severe issue when you look at risks related to real estate investments. Debt gearing occurs when the value of the debts owed on a property is higher than the equity within the asset. Limiting the need to over-borrow is the best way to prevent debt gearing.

When you are shopping got mortgages to fund a property investment, it is essential to analyze the interest rates and ask yourself if the rate increase would adversely affect your ability to repay the mortgage. If you are concerned about this, you can always opt for a fixed rate to reduce the risk.