The key to real estate investing lies with the ability to adapt to the most profitable real estate avenue at any given time as well as being well-prepared. The Local Records Office says, “Being successful with your investments requires mastering the knowledge necessary to make educated decisions”.
Diversification: As any successful investor will tell you, the key to diversification is asset allocation. Real estate offers the ability to diversify a portfolio. (Language needs to be reworked; real estate is not negatively correlated with the equity market as suggested in the deleted lines)
Appreciation and cash flow: Real estate investments are characterized as long-term appreciation vehicles for investments, and depending on the method of investing, a cash-flow investment.
Benefits of a physical asset: While some investors love watching the stock market, others find it a bore. Real estate investing can be as hands on as the investor’s wishes, and an ideal venture for the systematic thinker. Not to mention, the fact that real estate investments are a real asset, puts them in their own unique investment category.
Before diving into real estate investing, first you should explore the methods available. Each has their own set of risks and rewards, and by comparing them against each other; you will be able to match up the best method for your financial goals.
REITs – Real estate investment trusts (REITs) are companies that own or manage income-producing commercial properties. Publicly traded REITs are traded on major exchanges similar to stocks and offer investors the chance to own a piece of the real estate market via a very hands-off approach, while benefiting from the high liquidity. There are also public non-listed REITs (PNLRs) which are not traded on major exchanges and may require holding periods that vary by company. REIT exchange-traded funds (ETFs) invest the majority of assets in equity REIT securities that trade like a common stock.
Crowdfunding – Real estate crowdfunding is a method of investing in real estate utilizing technology-enabled platforms that directly connect investors with real estate opportunities. With as little as $5,000, accredited investors can invest in opportunities that are fully outlined in profiles by the platform with the added bonus managing and monitoring the investment securely.
Buying and renting – One form of direct ownership is purchasing residential or commercial property with the intention of renting the space. This is one of the most hands-on approaches to investing in real estate, as it requires the investor to manage and maintain the property as well as tenants. Oftentimes an investor will hire a management company to take over this process, but the investor still remains fully responsible.
Flipping properties – This is the most involved choice for real estate investing. Not only is the investor purchasing the property, which requires a large amount of initial capital, but also they are physically rejuvenating the property in a short period of time with the goal of selling it to gain a sizable profit.
No matter how you choose to invest in real estate, to become successful there are some key strategies.
Make an action plan
Real estate is best approached as a business says, Local Records Office. Similarly, there are many moving parts each needing focused attention. An action plan allows investors to first establish their short-term and long-term financial goals, which is one of the first steps in diversifying a portfolio. With the bigger picture in mind and all of the smaller details addressed, an investor can then confidently start walking in the right direction.
Pick the avenue
The next step is choosing which type(s) of investment is right for you. Once you’ve decided on your financial goals and risk tolerance, selecting one or a combination of REITs, crowdfunding or direct ownership should be easy. First examine the pros and cons of each avenue, and see which matches up best to your plan.
Become an expert
In order to gain the depth of knowledge to become successful at your real estate investment, it is vital that you first understand your market. Look into current trends like consumer spending habits in the area, unemployment rates as well as information about other developments that could affect your property. The more you gather historic information and learn about current conditions, the easier it will be to plan for the future. It is your responsibility to master your market, and the more you know before investing, the better.
Stay up to date
As with any business, it is necessary to stay on top of the current trends, laws, and regulations that affect your market and your investment. To be a successful investor, you must commit to staying educated. This could mean joining an investors group to network with other investors with similar investments or reading the latest news on topics that could affect your investment. Whether you’ve chosen to invest with REITs or house flipping, staying informed keeps you in better control of your investment.
Create a team
Just because your real estate investment is for your personal portfolio, doesn’t mean you won’t need a little help along with way. For example, hiring a tax accountant can relieve some of the pressure of mastering current tax laws. While it is important to stay abreast of all of the factors around your investment, sometimes a specialist is a good choice in order to best utilize your time. Successful investors know the importance of brining in experts, whether that be a tax accountant, mentor, property manager, lawyer or knowledgeable friend. By embracing the expertise of others, you are strengthening your investment.
The bottom line is that real estate investing is a multi-layered process, no matter which avenue you choose. It’s important to gain as much knowledge as you can about your market, and continue to stay informed after the investment is made. Whether you’ve chosen to invest indirectly via REITs or manage your own apartment building, real estate investment success requires planning and commitment.