Real estate investing, in the simplest form, is the buying, renting and selling of real estate for the purpose of making a profit. Investing in real estate is preferred by many as it is both a passive income-generating machine and a profitable investment in the long term. But investing in a home or a piece of land can be challenging in today’s times as property costs have spiraled higher and ongoing maintenance costs can be a drain. A prospective real estate investor should study the ground reality before entering the fray.
The age-old dictum, ‘Location matters’ is very appropriate in the real estate investing. It makes immense business sense to look for the worst house on the best street as the location and brand equity of the street would potentially convert the property into a selling proposition. The buyer should also look at the quality of the neighborhood and infrastructure availability as these factors would influence the property value in the future.
A savvy stock market investor is always on the lookout for a good deal. He would shun stocks trading at a premium to purchase beaten-down stocks and then sell them at a fortune. A real estate investor is well-advised to follow a similar path, avoiding fully priced properties and hunting for properties available at discounted rates.
Deploying borrowed money is never the right approach to investing. A prospective real estate investor should be in a position to pay for the real estate, or at the very least, be able to afford the mortgage payments without relying on rental income. Moreover, he should be able to shoulder additional expenses such as taxes, utilities, repairs and property insurance costs.
The best advice to first-time real estate investors would be ‘Start small’. The mortgage payment should be manageable even without rental property profit and the operating costs should be low. Purchasing a duplex, living in one unit and renting out the other, may be a good means of getting the feet wet.
Real Estate Investments carry many benefits:
Price appreciation is the actual route to making a windfall from real estate investing, although passive income has its obvious place. Real estate prices may fluctuate in the short term, but always head higher in the long run.
Rental real estate is an incredible source of passive income as the rental properties work for you, irrespective of whether you are asleep or located in a different part of the city. An owner of multiple rental properties can generate enough income to off-set the need for a full-time job and do what he really enjoys. Another major benefit of real estate investing is that it provides cash flow to supplement the retirement years.
Real estate investing is almost tax-free as it comes with tax exemptions and deductions galore. The rental property affords an opportunity for the investors to convert personal expenses into valid business deductions on the tax front.