Retail real estate has continued to deliver stable returns in the United States despite steady e-commerce gains. Recent analysis from MSCI finds that retail asset performance actually edged slightly ahead of non-retail assets in the 2012-2017 period, delivering an annualized total return of 10.4 per cent versus 10 per cent for
What is the best way to invest in real estate?
From a distance, investing in real estate does seem very exciting. But it can prove to be a tough endeavor for those who’re starting a new.
At the beginning, most investors feel that getting a real estate licence is enough and they can take everything on the go. But that approach is only confusing. It’s sort of like wanting to try out everything in a short span of time with no planning or strategy behind it.
With that approach, mistakes are bound to happen. It’s okay, everybody makes mistakes but making one too many can leave you with little or no money, and you don’t want that do you?
Are you a new investor? Here are.
So if you want to start investing in real estate, where do you begin?
The answer is very simple, stick to the basics. There are only two real estate fundamentals involved with starting in real estate. I’m not saying this is your formula for success because you’ll have to try out different strategies.
Keeping it simple. Firstly, you have to identify your niche and secondly you have to plan a driving strategy to be successful in your niche.
- Identifying your niche
- Making a plan of action
This blog will take you through all of the niches that you can look into when you’re beginning to invest in real estate and the different strategies that you can use.
But, first let me paint a scenario for you!
As children, all of us loved those every flavor candies, I sure did. When I got a hold of one of those boxes, I wanted to try all those different flavors and get a taste of everything. There were so many choices to pick from.
Similarly, there are many choices while investing in real estate. You can choose a niche of your own liking and choose to apply a strategy to it. But unlike candies, you don’t have to try them all out to find out if you like them or not.
You have to pick one and stick to it until you gain experience and get better at it. And that is what real estate investing is all about.
Remember, choosing one niche helps you narrow down your focus and come up with a better action plan that will help to you make more money.
Picking A Niche:
When you’re investing in real estate, there are many niches that you can choose from. I have covered some of the basic and common types of property that you are likely to deal with in your line of business. Each of these categories can even be divided further but remember the point that I made earlier, these are just the basics, you can dig down further once you get a strong grip of the basics.
- Large Apartments:
- Small Apartments:
- Multi Family homes
- Single Family homes
- Raw Land
You might have seen big apartment complexes in your area as well. Yes, that is what I’m referring to when I say large apartments. This class of property usually is very high end and most people invest in this type through syndicates: a group of investors pooling in their resources. They are costly but they provide a steady inflow of cash after the investment with minimum personal involvement.
The difference between a large apartment building and a small apartment building is not very well defined. But usually buildings with 50 or lesser units is considered as small. Investment in such type of property can prove to be tricky because it’s a small investment for big expert investment funds while it’s too expensive for starting newbie. But once the finances are arranged, it can prove to be a worthy investment with great cash inflows.
Multi Family Homes:
Multi Family homes are usually 2-3 units and are a decent investment to make. Firstly, because you see lesser competition in this category and secondly, you’re able to enjoy the purchasing benefits of a single family home when you’re investing in this type of property. They prove to be a steady source of income and can even be used as a residence.
Single Family Homes
One of the most common type of investment property that you’d see many investors dealing in is single family homes.
Why is that so?
Well, this type of property is usually easy to “buy n sell” and easy to rent out.
And it’s relatively easier to arrange the finances for it. However, the cash inflow from this type of investment is not very big. The profits are small and marginal.
Investments in commercial real estate can vary between sizes and the intentions from the property. Some investors rent out their properties to small businesses for office use while some rent their property out to mega stores and supermarkets. Investment in this type of property is not recommended for those who’re not at a very strong financial position. Why? Because, although the cash flow is consistent when these properties are rented out but they might even remain empty for many months in a stretch.
Well, it’s just a piece of land that can be used in many ways to generate profit . It can be worked on and sold for more value, it can be leased or rented out, and it can also be subdivided into smaller plots and then sold.
Usually, a common strategy that is applied to raw land by many investors is “buy and hold” which means that they purchase the land and then hold for until it gets them substantial value. This value can increase over time due to a development nearby or a main freeway passing by.
I have just outlined some of the very basic niches to start your real estate investment career. In the beginning, all you have to do is pick one niche and start working in the niche. This should be your stronghold; you should form connections, network, and know the in’s and out’s of that niche by heart. Sure, you can expand and test yourself in other niches as well when you’re experienced but when you’re starting in the investment business, sticking to your knitting is the best policy to adopt.
Choosing a Driving Strategy
Now that you have identified what niche you want to start with, it’s time to work on a driving strategyto get you going. I’ll try my best to keep this as simple as possible and take you through some of the basic strategies that you can adopt. It’s not set in stone to work with a single strategy and instead you can try out various strategies for your investment business.
The Buy and Hold Strategy (long term investment)
One of the most common forms of strategies involved with investing in real estate is the “Buy and Hold” strategy. The basic idea for this strategy is to buy a property and hold it for a substantial amount of time. During this time, the property can either be rented out or just held vacant until the time it’s value increases significantly.
Pros of the Buy and Hold Strategy
- Decreasing principle balance
- Increasing equity
However, with this strategy, success is greatly depends upon an investor’s ability to identify good deals. It’s this basic understanding that makes all the difference. So as a starting investor, you should focus on learning how to identify deals, what bad decision you should avoid, and how to estimate expenses on a deal.
If you’re able to do that, then my friend, you’ll surely be on your way to master the “buy and hold” strategy and will hopefully be on the road of making more money with your business.
The Flipping Real Estate Strategy (short term investment)
The second most popular strategy that is often used when investing in real estate is the house flippingstrategy. The basic idea is to purchase a house or a property at a lower price, making a small investment to make the property better and then selling it for a higher price. These type of investments are short term and are linked with your business objective.
Rule of Thumb for flipping Houses: Buy the property for 70% of its original value (including investment)
But for this strategy to succeed, speed is very important because it’s a short term investment. For you to be a successful house flipper, you can’t wait around and do it passively. You have to buy, make improvements, and sell the property as quickly as possible.
The quick shotgun strategy helps you to avoid any monthly charges that might apply to your property, they may include, financing charges, property taxes or any other financial bills that might be due.
Pro Tip: If your niche is to deal in single family houses, then this particular strategy is highly recommended for you.
The WholeSaling Strategy
Usually regarded as the easiest strategy for investing in real estate because an investor dealing wholesales does not actually have to own anything. A wholesaler’s job is to identify a good deal, get a contract for that deal, and then sell it to another investor or retail buyer.
The fee of the contract may vary depending upon the size of the deal. However, being successful at wholesaling is not as easy as it sound. It may look easy but the key to being successful with this type of strategy is to continuously seek out newer and better deals and find new buyers for those contracts.
Pro Tip: Staying persistent is the key to being successful in wholesaling.
Starting in wholesaling is not a hard thing and someone with little financial resources (gotta have some money) can start to deal in wholesales. However, you have to manage your time and resources at the same time to be successful with it. A good amount of time needs to be spent prospecting for newer options while the same amount of time has to be spent in building a marketing funnel.
If all of this information is going over your head and is too much to consume at the moment. There’s nothing to worry about. It’s only the beginning and investing in real estate is a learning curve from the beginning till the end. There are no shortcuts to being successful, so be patient. Take your time, step into the unknown waters, and learn to swim with the tide.
I believe I have given you everything that you need in order to figure out what investment will work best for you. You can also plan to invest in rental properties. For which you might want to get yourself familiarized on.
Hope my answer helped you a great deal 🙂 Happy investing 🙂