The real estate market has always been an excellent investment strategy regardless of age or skill level. Property retains its value far better than other investment vehicles, given that real estate is a limited commodity and, depending on the type of investment, a basic need for shelter.
More than that, there are numerous avenues to enter real estate, whether through a real estate investment trust (REIT) or by flipping homes; there is an option that matches every budget and risk exposure profile.
However, this is not to say that entering the real estate investment arena is stress-free. Young entrepreneurs must understand the risks and rewards of investment to make intelligent decisions that will serve them far into the future. Today, we will investigate some of the essential steps to success in real estate.
Identify Which Real Estate Option Appeals to You
First, you must define your goals as a real estate investor. Is this a side hustle to generate income for your primary business? Do you hope to make this your primary source of income? This can help you decide what type of projects you will focus on as an investor.
Investigate the different subcategories of real estate, including those that do not involve owning and managing the property. A real estate investment trust (REIT) is an easy niche to enter but does not net high profits. On the other hand, house flipping requires large cash reserves, business acumen, and a lot of hard work, but it also has very high-profit margins if done successfully.
What you choose comes down to your willingness to take on risk and the money you will invest upfront in your purchase. Once you have identified the niche you want to enter, you can write a business plan that outlines your goals, defines your product, and the potential short and long-term profits. This document is crucial if you are seeking financing from others, including banks; they will want to see a powerful business plan that considers all outcomes and shows foresight into how to deal with challenges.
Ally Yourself With Seasoned Investors
Investment is an art as much as a science. You must learn how to decode market trends, protect yourself against unexpected shocks, and carefully balance profit and expenses. This is why networking with other professionals is crucial.
Older investors have seen housing trends come and go and will recognize a good opportunity when they see one. They can impart their wisdom and steer you away from untrustworthy realtors, suggest great investment loans, and help you handle the stresses of rental management.
Thankfully, there are many ways to network as a real estate investor. The National Real Estate Investors Association maintains a directory of local REIA chapters for local events. They also provide online courses to help you make the most of your money before investing.
Pick the Correct Market for Your Budget and Experience Level
It’s easy to get starry-eyed and want to go for the biggest market out there, sure that you will get your break. However, these markets are also incredibly expensive, and thousands of other, more experienced investors have their sights set on the same properties as you.
For example, California has the second lowest homeownership rate in the country. This is partly because a single-family home costs $783,666, which is shockingly high compared to the national average of $417,700, but the average salary is only $61,784. Such a mismatch between home prices and wages bodes well for investors, but the high price tag also makes it riskier for a younger investor.
You can get an investment loan solely on rental income; however, you need a steady cash flow to ensure you will not fall behind on your mortgage. If you’re unfamiliar with acquiring and managing tenants, this may cause problems. This is part of why such investment loans are typically only offered to those with proven experience in managing rentals.
As such, building your brand and experience in a smaller market may prove helpful. Many excellent small and mid-range markets are available, such as South and Midwest areas, with solid prospects but lower home values. Research your options and rely on the advice of your fellow investors, who can assist you in finding target markets and properties that will match your specific needs.
Conclusion
Real estate investment is an excellent way to diversify your holdings and generate passive income that can be utilized for other ventures. Still, it does require knowledge of the market, a strong network of others who can assist you in finding prospects, and a willingness to build upon success. By putting in the work ahead, you can ensure a great return on investment and a solid income stream that will help you develop your financial freedom.
