by Susan Paige
$31.8 trillion is a mind-boggling figure, right? Well, this represents the current value of all homes in the United States. In simpler terms, the total amount of the real estate industry is more than 1.5 times the country’s GDP.
The figures are a representation of the reality on the ground. The rates of rental housing have been on the rise over the past five years. This is notable even as the number of Americans who own homes increase steadily.
There is never a better time to venture into the real estate industry than now.
However, before you make your best bet, you may need to pause and think ahead. Getting started as a real estate investor might look easy, but it’s easier said than done. Here’s your guide to becoming a real estate investor.
What is the Scope of Real Estate Investment?
Before you can consider how best to leverage real estate as an investment, you need to understand the sector.
Real estate investments relate to the use of speculative techniques to make an income through buying and selling property or land. Real estate investors can make money through renting, owning or flipping residential, industrial and commercial properties.
Whichever line of investment you decide to settle on, there will be potential opportunities and threats.
Types of Real Estate Investments
Venturing into real estate investment may be complicated if you lack the necessary knowledge.
Residential real estate investment is the most common option for most people. You may wish to consider single-family homes or condos for rentals if you consider residential plans.
In other instances, townhomes with easy resale value or put on rental arrangements may present a probable sure bet. If you consider the buying price of a condo and the possible direct returns cumulative when renting, the result could be a lifetime worth of valuable investment.
As the population soars, multi-family homes and rental properties will likely have a steady demand. You can opt for this option if you are keen on making quick returns on investments.
Depending on other factors, such as the availability of capital, commercial real estate may be another option. You may opt to invest in larger residential property or work towards large business premises. Office spaces for lease may be a source of recurrent income for you if you consider this option.
Commercial real estate also offers the option of building or buying property for industrial purposes. However, this option is limited to the location of the property. The law stipulates specific considerations that seek to demarcate residential and industrial areas.
Now that you have a better understanding of the real estate sector let’s see the steps you need to consider before making that real estate investment.
1. Determine Your Plan
You are aware that the decision to focus on real-estate requires a combination of many other related and unrelated factors.
Making this a success will require a plan. You need to identify your long-term and short-term targets as you move ahead with your investment.
Becoming a real estate investor requires that you have a bigger picture of the opportunities and risks that prevail.
You are about to venture into a complex and demanding sector that requires reliable and practical planning. Having a plan minimizes the chance of dealing with unanticipated occurrences and eventualities.
2. Understand Your Market
With this guide, you already understand the various options available to you as a real estate investor. Staying in touch with current trends in the real estate sector helps you in making sound decisions. Real estate investing requires that you make many critical observations on the trends and dynamics in the market.
You probably know by now that this sector is highly speculative. This means that trends and patterns must be your guide before making capricious decisions. Certain specific trends may guide your decision-making process.
Suppose you are eyeing the rental property market. The demand for rentals and the underlying supply may be critical premises when deciding on your market of choice. You may also want to consider other factors such as job growth and disposable income in such settings.
Market analysis and an initial plan of action will give you an idea of how far you can go when making this critical decision to invest. Becoming a real estate investor requires that you assess the market and understand various factors.
You may need to understand aspects such as the average rental charge you would target in a given region or the average home purchase value prevailing.
Understanding the market will make your investment in real estate more informed.
You may consider using local market real estate monitors of government resources when assessing your market.
3. Becoming a Real Estate Investor Requires a Solid Financial Plan
This is where you need to pay specific attention. Real estate investment is not a cheap venture. The cost dynamics are likely to throw you off balance if you lack a solid financial plan.
Various options for investments may be available to you. But you need to consider the best alternative before committing. While some people are fortunate enough to have savings that may be used as an option when investing, most investors depend on external financing.
If you’re ready to make that initial investment into the real estate sector, hard money loans may be an option worth considering. Most investors focus on this option because it allows them to use other people’s money to grow their real estate ventures.
If you wish to leverage your capital options by using the hard money loan in your investment, then some lenders can make your dream a reality. You need to focus on a lender who understands your market needs and can offer instant access to credit when you need it.
A hard money lender will ensure that you can access unregulated and flexible loans fast and easy. Real estate investment may require that you have a reliable lending partner keen on making your finances quick and easy. This is because of the capital intensiveness in the venture.
4. Understand the Risks
Real estate investments are based on speculations. This is a common concern when becoming a real estate investor. You need to understand the inherent risks when making each investment decision.
You must also ensure that you can make prudent decisions on how much to invest and when to pull out. Understanding tax loopholes and other legal dynamics will ensure that you are better prepared for the consequences and complexities that lay ahead.
The decision to invest in real estate can be rewarding in the long-term. However, making prudent decisions on the extent of investment you are making will ensure that you are insulated from the many underlying risks. Having an adviser on taxes, legal intricacies and investment options can be a critical first step when understanding the prevailing limitations.
5. Focus on the Bigger Picture
You probably have heard instances of real estate bubbles over the years. The concern is often due to the development of numerous real estate projects without a clear focus on the big picture. You need to be different when making that real estate decision.
Becoming a real estate investor may seem easy, but you need to understand that finding a reliable and robust niche depends on other related factors. Who are your target tenants or clients? Are you investing closer to home or venturing into a brand new market?
Most real estate investors often get stuck when faced with such decisions.
If you’re keen on how to become a real estate investor, these concerns are valid. Investing closer home presents various advantages; however, exploiting new markets may also be a real opportunity.
Local economies present the advantage of having an understanding of market needs, limitations, and opportunities. You don’t need to conduct intense research on your local market, which saves you money and time. Nonetheless, new economies also offer the option of setting new standards while exploring the opportunities salient in such virgin markets.
Finally, you need to focus on other factors, such as population growth and future economic speculations.
While investing is many people’s greatest joy, it is fundamental that such investments yield good results. Developing a bigger picture will help you get there.
6. Consider Uniqueness
You may need to consider leveraging certain advantages such as adding value if you are going to survive in the real estate industry.
You need to create convenience for your target clients. Focus on making your property accessible through public transportation.
You need to consider other factors such as comfort.
If you want to set up a multi-family unit, for instance, you need to assess other issues such as nearness to social amenities. Invest in a property that will add value to your client because this is your only selling point.
Value addition will ensure that you can get returns for your investment. Factors such as space may seem trivial, but tenants will often consider such aspects as an added advantage.
Before you venture out into the real estate market, you need to consider what extra benefit you may gain.
Your Next Real Estate Investment Could Be a Deal-Breaker
Having understood the factors that stand out in the real estate context, you are now ready to hit the road running.
However, finances will be your most significant concern when dealing with this highly capital intensive process. Becoming a real estate investor may require a lending partner that understands your needs.
This will save you from the underlying financial burden you may have to deal with when making real estate investments. Once your finances are settled, you will be smiling all the way to the bank soon enough.
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