Real estate investing can be very risky, but it can also be highly lucrative. Everybody believes that location, location, location is what matters the most, but it is actually more important to know who you are dealing with. The reality is that there are some seriously shady characters in the world of real estate. Consider those late night advertisements on television, where realtors promise to make you a millionaire, for instance.
First of all, you want to get a return on your investment. Real estate is an illiquid asset that require you to take money out of your liquid assets. You need to strive to get a return rate that is the same as what it was on your liquid assets. This means that you should find a true cash flow property, and not a money pit.
You also have to make sure that you don’t take too many risks. Real estate is always risky, but some more so than others. You might want to stay away from fixer uppers, private real estate funds, tenant-in-common options and real estate development. Indeed, with these options, so much can go wrong that you are likely to never see a return on your investment. Instead, choose to have titles that are totally yours, on properties that are interesting. Of course, this takes a lot of research, analysis and due diligence. Try to find a property that you don’t have to manage intensively and that doesn’t take up too much of your time. Avoid short term rental properties like vacation homes or student accommodation, or properties in bad areas for instance. Try to find a property that someone with a good credit profile will want to rent for a long period of time. Naturally, this means you also have to be committed to being a respectful and good landlord. It is impossible to never have a problem with your property, but so long as you deal with issues quickly, this shouldn’t be anything to really worry about.
You can also decide to look into a real estate investment trust (REIT). Through a REIT, you can get started in investing with less capital behind you, although your returns will be smaller too. REITs are popular because you are essentially investing in real estate corporations. Through a REIT, you can invest in anything ranging from an industrial park to a shopping mall. You can keep track with the performance of a REIT through the NASDAQ and stock exchange. A REIT can be best compared to a mutual fund, although the REIT invests solely in real estate. Before you start, however, you need to think about a few things. Consider the key holdings’ economic conditions for starters. Also, you should look into how the REIT has performed historically. Also look into their future plans. Also, you need to look into who manages the REIT and how they have performed. Last but not least, consider what the real estate market looks like and how this could affect how your REIT will perform.