Where should amateur investors start? It can be a tricky subject to broach for those who haven't previously ventured into the market.
Some people look to buy small apartments where they can rent out various units to tenants. Others hope to buy distressed properties, complete a series of renovations and then sell them in a timely matter for a profit.
When considering getting into real estate, there are two main methods to consider, direct and indirect investments.
A direct investment means that you are buying a stake in a specific property. This can mean purchasing property, buying an ownership stake in a commercial property, investing in the lending capital required to build the property and more.
With direct investments, you have control over what you are investing in. Direct investments are also eligible for tax relief for deferral. The things to keep in mind with direct investment though, are that they require a large upfront capital as well as offering less liquidity.
An indirect investment is buying shares in a fund or stocks in companies that invest in real estate. This can be done mainly through real estate investment trusts (REITS) or exchange-traded funds (EFTs).
Indirect investing might be better for you if you are not ready to dedicate any time or effort to your investment since they act more as a stock than owning an actual property and also require much less capitol. It is important to keep in mind that indirect investments are taxed much more heavily than direct investments.
Warning
Prospective investors should avoid listening to real estate agents about what properties will yield a strong return because real estate agents are looking to make a commission on the property the investor buys. This means they might be less than impartial when choosing a unit.
Meanwhile, people shouldn't lean on their homeownership experiences too much because meeting rental regulations is a different realm. Renting out a property is distinct from owning a home because the owner will need to make sure the building meets certain guidelines. That includes following all safety guidelines, keeping up with fair housing rental regulations and making sure the building meets all city codes.
Considering Cash Flow
House flipping can be a smart option for those who are experienced in construction or home renovation, but those who don't know how to renovate a home might want to consider a different path to real estate investments.
One problem home-flippers have is if the property doesn't sell quickly, because they will still have to pay taxes on the property and keep up with any needed maintenance. However, when this occurs, home flippers can choose to rent the property instead of keeping it listed on the market to take care of some of those costs.
Real estate investing can be a rewarding journey. With dedication and a long-term mindset, you can build wealth and achieve your financial goals. Happy investing!
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