Recently, living costs have been rising while wages have remained stagnant. Because of this economic setback, many people have been forced to look for alternative sources of income, and real estate investing has become a popular option. This industry can be very profitable and, at the same time, risky. However, you can’t ignore that people are making a killing in real estate. So, if you’re considering becoming an investor, here are seven things you need to know before taking the plunge:
- You Need To Have A Solid Strategy
The secret to profitable real estate investing is having a solid strategy. When coming up with strategies for investing in real estate, there are some things you need to ask yourself. What type of property do you want to invest in? How much can you afford to spend? Do you plan on buying to sell, or rent? What is your goal for the investment?
By having a clear strategy, you’ll be less likely to make impulsive decisions that can end up costing you money. While it’s impossible to tell what’s in store for the real estate market, having a strategy will help you cushion any storms that come your way.
- It’s Hard To Make It By Yourself
While they say that there are real estate investing apps and online resources available for real estate investors, the fact is that it’s still challenging to make it by yourself in this business. It would be best to have a team of experts to help you with different aspects of the investment process, from finding properties to managing them.
Remember, the goal is to make money, not just to buy property. Many things can go the wrong way when you’re trying to make a profit from real estate investing, and it’s essential to have someone walking with you who knows what they’re doing. Otherwise, you could end up losing everything.
- You Need To Have A Down Payment
You need the initial investment (a.k.a. a down payment) to purchase any property. For those looking to join real estate, your down payment will typically be 20% of the total purchase price. You will also cater for closing costs, an estimate of fees associated with finalizing the deal, ranging from about two to five percent of the home’s purchase price.
So, if you are purchasing a $200,000 house, expect to have at least $40,000 saved up just for the down payment and closing costs—and this is on top of any emergency savings you should already have!
And remember, a down payment is not the same as your security deposit. A security deposit is paid at the beginning of your lease and is fully refundable at the end of the lease term if there is no damage to the property.
Down payments are paid during the purchase of a property and are not refundable. So, how much should you aim to have saved?
A good rule of thumb is to have at least six months’ worth of mortgage payments in the bank, plus your down payment and closing costs. If you experience setbacks or unforeseen expenses after purchasing your property, this will be your lifesaver.
And where do you get the money for a down payment? You could use savings, gifts, or loans from family and friends. Ensure you understand the terms of any loan you take out and are comfortable with the risks before signing on the dotted line.
Several government-backed programs can help you with your down payment, such as the First-Time Home Buyers’ program. Do your research to figure out if you qualify for these programs.
Another option is withdrawing from your Registered Retirement Savings Plan (RRSP). You can do this through the Home Buyers’ Plan (HBP), which permits home buyers a withdrawal of up to $25,000 from their RRSPs towards their down payment.
You will have to repay the withdrawal over a period of 15 years, but it can still be a helpful way to come up with the money for your down payment. Just make sure you plan ahead and leave yourself enough time to complete the required HBP paperwork before you make your purchase.
- Different Types Of Real Estate Investment
Before diving in and investing, you need to understand the different types of real estate investment. Each type has its distinct benefits and drawbacks that you need to be aware of. The most common types include:
- Residential Property Investment
This is the most common type of real estate investment. It involves investing in a property to be used as a residence, whether a single-family home, an apartment complex, or a vacation rental.
The biggest benefit of investing in residential property is the potential for high returns. The demand for housing is always strong, so you can expect steady growth in your investment. And if you choose to rent out your property, you can generate passive income each month.
However, there are also some disadvantages to this type of investment. For one, it’s more expensive than other real estate investments. You’ll also need to work more to find tenants and manage the property.
- Commercial Property Investment
Next on the list is commercial real estate investment. This investment involves properties used for business purposes, such as office buildings, retail stores, warehouses, and more.
Investing in commercial property comes with a few key benefits. For one, you can expect higher rental rates since businesses are willing to pay top dollar for quality space. There’s also less competition in the commercial real estate market, so it’s easier to find good deals.
However, there are some risks to this type of investment as well. Commercial properties are usually more expensive than residential ones. They also tend to have more extended vacancy periods between tenants, so you may have to carry the property for a while before you start seeing a return on your investment.
- REITs
Another less known but important type of real estate investment is REITs. REITs are specialty funds that invest in various types of real estate, such as office buildings, shopping malls, apartments, and more. This type of investment happens when the money collected from many different investors is used to purchase and manage these properties.
The good part about this investment is that it’s more liquid than directly investing in real estate. This means you can easily sell your shares if you need the money. REITs also tend to be less risky since they spread your investment across many properties.
The downside of REITs is that they don’t offer as much control as other investments. You’re also at the mercy of the fund manager, so you must thoroughly research them before investing.
- Crowdfunding Platforms
Also, you can’t forget about crowdfunding platforms. These platforms have recently become popular and allow you to pool your money with other investors to buy a property. The platforms do all the legwork for you, so it’s a great way to get started in real estate investing.
The main advantage of crowdfunding platforms is that they make investing in real estate more accessible. You can start with a smaller investment, and there’s less risk since you’re spread across many properties.
However, the downside is that you don’t have as much control over your investment. And if the platform goes under, you could lose everything. So, research before investing in any crowdfunding platform.
- Industrial Property Investment
Last but not least, we have industrial property investment. It involves properties used for manufacturing, storage, or distribution purposes.
The fantastic thing about industrial property is that it usually has a low vacancy rate. This means you can get a steady stream of income from your investment.
The problem with industrial property is that it can be pretty expensive. And since it’s not as popular as other real estate types, it can be challenging to find a buyer when you’re ready to sell.
- The Real Estate Market Is Ever Changing
Sometime back, Covid-19 struck the world, and the real estate market was one of the most affected sectors. The pandemic saw many lose their jobs while others got salary cuts. In return, many were unable to pay their mortgages. This forced banks to foreclose on properties and send the owners packing.
The virus also decreased commercial activity as businesses closed down or downsized to cut costs. This had a ripple effect on the real estate market as office and retail space became vacant, leading to a decrease in demand and prices for these types of properties.
What does this teach you? This is a clear indication that you must be cautious before venturing into real estate investing. The market is ever-changing, and you need a firm grasp of what’s happening to make informed investment decisions.
- Research Is Key
As mentioned earlier, the real estate market is constantly changing, so it’s essential to do your research before investing. By staying posted on the latest trends, you’ll be able to make more informed decisions about where and how to invest, and the different ways to boost the value of your property.
There are several ways to research the real estate market, including:
- Talking to other investors
- Attending industry events
- Reading industry publications
- Following real estate blogs and news outlets
No matter what path you choose to invest in, ensure you do your homework before making investment decisions.
- It’s Not a Get Rich Quick Scheme
You will often get stories of people who have made it big in real estate. What you don’t often hear are the struggles and sacrifices these people had to go through to get where they are now. Real estate investing is a business. Like any other business out there, it takes time, effort, and patience to succeed.
You will need to do your research, create a solid plan, and be prepared for bumps along the road. Real estate investing is not for you if you’re looking for a quick fix or easy money.
Conclusion
While there is much to consider before becoming a real estate investor, these are some of the most important. By educating yourself and building a solid foundation, you’ll be in a much better position to succeed in this ever-changing industry. Remember, research is key, and it’s not a get-rich-quick scheme. If you’re patient and willing to work smart, you can achieve your goals and make a good return on your investment. But it won’t happen overnight. So, don’t let anyone tell you otherwise!
