In today’s struggling economy, more people than ever are turning to investment strategies in an effort to make more money without having to take on another job. Investments can vary, but a steady and popular choice is real estate. If you have ever considered getting into rental properties or running an Airbnb, this starter guide will help you understand the benefits of real estate investments and key points you need to consider before getting started. Real estate becomes simpler the more familiar you are with the process, but all investors must start at the beginning with that first rental property. Keep reading to learn more about how to get started.
The Benefits of Real Estate Investment
Your investment portfolio is a combination of everything you have invested in. This could be stocks, bonds, and funds. Many financially savvy investors rely on a strong and diversified portfolio to increase their income and plan (or fund) their retirement. Each industry has pros and cons for investing, but real estate is one of the most popular. The reasons for this are many, but a few key points are:
- Cash flow strengthens over time
- Numerous tax deductions and breaks are available
- Income generates from both rental payments and appreciation
- Financing is readily available as you have collateral
- You build equity
- Real estate can be an inflation hedge
With all of the above and more, real estate investment is one of the best investments in 2023.
How to Get Started in Real Estate
Real estate investment has several different strategies for you to consider, but you need to make a few decisions right at the beginning. First, determine your strategy— do you want to invest alone or with a group? Do you want to be a landlord or hire a property management firm? Do you want to flip old or dilapidated houses or invest in ready-to-rent properties? These decisions will determine your investment process, including how you finance your properties.
A Look at Financing
The first financing is the more difficult; once you have a built portfolio and a history of a well-performing rental property, financing companies will be more willing to take the risk. Investment property loans are a good option if your first potential property is ready to rent. These aren’t the loans you would consider for flipping a home. Once you have successfully managed a property for a few months, you become eligible for debt-service coverage ratio loans, which make obtaining additional properties easier.
Working with Local Agents
Once you have a firm idea of what types of properties you want to start with, find a real estate area local to where you want your investment properties to be. While working with an agent can accrue costs, they have a better understanding of the market and can help you choose the best locations and negotiate contracts until you have a better grasp on the process. They can also help you find good tenants for your properties.
Preparing for Property Management
One thing you need to know before you get started is whether or not you want to be an active landlord or if you would rather trust a professional company to take care of things. You can always change your mind in the future. Some first-time landlords are surprised to learn how much they need to take care of. As a property manager, you have to create a leasing agreement, screen tenants, and maintain everything on the property—especially safety. If you are able to find tenants who want more control, you can delegate certain responsibilities to them in the leasing agreement. You can also add restrictions to their responsibilities.
Your most important task is to ensure the property is safe and up to code. Appliances should be in working condition, and the house or unit should be structurally sound. Landlord duties can vary by state, so it’s a good idea to check in with a local lawyer or do some research on the area in which you want to invest. For for your first leasing agreement, it’s best to check in with a lawyer anyway and ensure everything is up to standard and phrased well to protect yourself.
Working with a property management company can become more beneficial the more properties you invest in; they also help immensely if you are not local to your rental area.
Don’t Be Afraid to Hire Help
New investments can be daunting to start. There is no shame in working with professionals to ensure everything is up to snuff, whether for your financials, taxes, property hunts, or something else. Just be sure to research any companies or agents you consider so you know you are making a safe decision. It may be something as simple as forming a working relationship with contractors or local handymen in case your properties in the area need their services.
Investors have a wide selection of resources to help them get started, including investment communities and mentors. If you have any questions, don’t hesitate to reach for these resources while you’re getting started. With a little research and a dash of trial and error, you’ll be on your way to a successful investment strategy.