Monday, November 2, 2020 / by Vanessa Saunders
By Vanessa Saunders, MBA, MIMC , Broker Owner, Global Property Systems Real Estate.
If you are thinking about investing in real estate, you can be comforted by Mark Twain's recommendation: “Buy land. They’re not making it anymore.” Regardless, if you are financially secure, i.e have savings for retirement, an emergency nest egg and no high-interest debt (read credit cards), investing in real estate may be a good next move for you.
Keep in mind that as with any investment, real estate works best when you’re in it for the long term. If you're young enough, it positions you to take advantage of the appreciation that usually happens over time, even if there are short-term dips. Plus, you'll also avoid spending too much of your investment cash on closing costs and other fees.
Start early and small.
The best way to invest in real estate is to do so slowly. Don’t plan to buy multiple investment properties at once or move a large chunk of your investments into real estate. Start small. But if you invest in real estate the smart way, you’ll be in a good position to build wealth.
Coming from a real estate perspective, we've chosen to discuss investing in real estate by actually buying property. There are a number of other ways you can invest in real estate in which investors will never see an actual property they own or have a share in. Real Estate Investment Trusts or exchange traded funds (ETF's) are much like investing in stocks, and not nearly as fun as owning a property. One can also buy real estate related stocks. You can even invest in Zillow this way. Investors can even find crowdfunding platforms that revolve around real estate. But we want to talk about REAL real estate investing.
Buy a Home
The most obvious and simplest way to invest in real estate is by buying a home. There’s no guarantee your home’s value will increase, but historically speaking, buying a home has paid off. Many studies show that homeowners have more than 40 times the wealth of renters. (Of course, wealthier people are more often able to afford to buy homes.) Owning and living in the same home is not only a good place to put your money, but is also a great place to put all your stuff at the same time.
Be a Landlord.
Renting out a home you own puts you in the position of being a landlord. As such, you will not only be responsible for keeping your property rented (and producing income), but will come with a whole load of other responsibilities beyond problem tenants and drawing up lease agreements. Even though someone else is paying your mortgage, property taxes and home insurance, your landlord budget needs to include a separate landlord insurance policy, routine maintenance costs and a reserve for emergency repairs. Oh, and have a little set aside if tenants can’t stay current on their rent.
Be a Home Hacker.
Buying a multi-family property and living in half or part of it and renting out the rest is a first step into becoming a real estate mogul. You become a landlord and homeowner in one purchase. Although finding multi-families for sale is like finding unicorns at Yankee Stadium, it can be done. If so, you get a place to live, and the rental income pays the bills. Just be ready for maintenance and repairs, and be sure you get tenants you like - they’re also going to be your neighbors.
With house hacking, you can often get into real estate investing without a big down payment. For example, if you’re financing a property with four units or less, you can qualify for an FHA loan with 3.5% down. In some cases, you can even use your expected rental income to help you qualify for the loan.
Be a House Flipper.
You’ve seen it on TV reality shows, but the television version is far from reality. Flipping is basically buying a house, often with cosmetic or other problems, fixing it up (putting lipstick on the pig) and re-selling it for a profit. Your first challenge is finding a house to flip. Ex[pect to spend a lot of time crunching the numbers, and plan on paying cash - lenders are not as excited about your venture as you are.
In addition to what you pay for the home itself, materials and labor, taxes, insurance and other expenses often add up to anywhere from 20% to 33% of the property’s after-repair value. But major repairs aren’t always necessary. Some house flippers simply buy a property in an area where real estate prices are appreciating. They hang on for a few months, then sell it for a profit without changing a thing.
Be a B’n’B
This option was better without Covid-19, but then again, were’t we all. People are traveling less, and extra safety precautions are necessary, at least for now. But someday, people will want to strike out again, to find that perfect little weekend place to go to. One advantage is, websites like Airbnb and VRBO make it easy to market your property worldwide. One downside - Management fees for your property can run to about 25% of the income your little bit of bliss can generate.
Still up for it? Want to talk to an expert about investing in Hudson Valley real estate? CONTACT Global Property Systems for more information.