Many greenhorns who want to invest in the real estate sector usually plunge unguided into the terrain and get their fingers burnt. From this unpleasant experience, many intending investors consider real estate a no go area.
Notwithstanding the challenges, real estate investment can be a lucrative way to grow money for one’s old age. However, real estate is not for everyone; it takes dedication, patience, research and planning. If one is interested in investing in real estate, here are some tips to guide you.
Know the costs involved.
To be realistic, real estate investment is not cheap. Properties cost quite much to purchase outright, but if you have the funds or are willing to take out a loan, it can be worth it. However, it’s not as simple as purchasing a property and watching it make money. There are additional costs to keep in mind: basic maintenance, yearly upkeep, upgrades, and expenses like utilities and taxes.
If you decide to take out a loan, don’t forget to factor in real estate investment trusts.
Real Estate Investment Trusts(REIT)are companies that finance or own real estate property, based on specific requirements. They allow investors to invest in properties, and while REIT pays out most of their taxable income, investors are responsible for the income taxes. Everything has a cost, so be sure to factor everything. Know what you are getting into before jumping in.
Select the property type.
So, you have enough set aside for real estate investment. Now, you must decide which type of property to invest in. You can purchase rentals, which could be either commercial or residential. You can become a landlord and rent out a home or apartment. You can use your property as an Airbnb or a vacation rental.
If keeping a residential property isn’t something you’re interested in, you can opt for the commercial option. Or you can avoid renters and purchase property to flip for a quicker return. Before selecting a property, decide what your plans are for it and what goals you have in mind.
Check out the area.
When it comes to real estate investment, location is a key factor. You don’t want to buy in an area just because the price is right. Perform your due diligence: Check the market value, the neighbourhood and what the location offers. The type of rental you’re interested in can help determine where to look.
Research the competition, and determine whether the property you’ve chosen is in a prime spot for its purpose. For residential or vacation rentals, consider the community, proximity to popular attractions and way-of-life factors. For business rentals, check out the area’s population, parking and demographics.
Protect yourself against uncertainties.
If you are thinking about investing in one or multiple properties, consider using Limited Liability Company(LLC) to purchase them. An LLC, or limited liability company, can help you with risk management. The LLC has ownership over the properties; if anything should happen on those properties, you are not held personally responsible. Additionally, having an LLC can protect your retirement fund should something occur on the property.
It can also give “chequebook control,” which can help if time is a factor when accessing your retirement funds for real estate-related purchases. After opening an LLC using your self-directed individual retirement account, your account is the business, and you are the assigned business manager. This process allows you access to your funds whenever you need them; however, that doesn’t mean you don’t need a custodian, or that you can take the funds for other uses. All funds removed must be used on the property, and any withdrawal needs to be reported to your custodian. However, instead of being charged for multiple account changes, you only need to report it once. This is especially useful for paying fewer fees.
Decide terms for investment.
After selecting your property type and location, you can come up with the terms regarding your investment. Calculate rent, fees, yearly costs and emergency funds to keep a running budget. Are utilities going to be included? Keep in mind any fees and how much funding you’ll need to maintain the quality of your investment.
Consider hiring a property manager, especially if you plan on having properties in different locations. The key is to decide this ahead of time, so you aren’t blindsided when the bills start to roll in.
Buy property with the mindset to grow.
When you invest in real estate, you may eventually want to sell it. Whether you intend to flip it immediately or hold on to it for a while, you’ll want to profit. The goal is to sell your property for more than you paid for it. Build your property value by making simple upgrades or additions. When you increase property value, you can sell it for more, and your hard work will pay off in a big way.
Keep important numbers on hand.
Real estate investment takes a lot of communications and contacts. While you may have the power, you are limited in what you can do to the property yourself. Have a go-to list of people who you will need to assist you with your investment. Property managers, an attorney, a CPA, real estate agents and money lenders are all-important resources. Also, keep in mind anyone you will need to keep your property in tip-top shape: an inspector, plumbers/electricians, a handyman, pest control experts and contractors. While you may not need all these people up front, it’s good to have a few reliable numbers to call.
Real estate investment can be an undertaking; however, when done properly, you can build a successful nest egg. Take your time and perform due diligence before deciding if real estate investment is right for you. Be sure you have the time and resources to dedicate to this investment strategy and build your retirement fund today.