If you are an investment newbie, you probably have a lot of questions in mind. What is real estate investment? Why should I invest my time in it? Is it worth investing my time? Where do I look? When do I start? How do I proceed?
To help clarify things, here is our guide for real estate investment newbies.
What is real estate investment?
In the past week, I went around asking this question to some of my friends both in and out of the real estate field, and the responses I got were quite interesting.
“Oh you mean flipping a home?”
“I think it’s like buying a house and selling it for profit?”
“Buying a house…?”
“Buying a property and renting it out?”
The most surprising thing I found was that no one was sure what real estate investment really means. They all sounded hesitant with their responses.
But the good news is that everyone was on the right track. Real estate investment involves investing in a real property for the purpose of making money. There are numerous ways to do this, some simple and some very complicated, so to simplify this for a newbie, I’ll just speak on the most commons methods to invest in real estate. Most people purchase property to either, 1) buy and hold to generate rental income, or 2) buy and flip or to sell to someone else when the market price goes up. But let’s be honest here, there is nothing wrong with doing both.
Why should I invest my time in it? Is it worth investing my time?
As you may have guessed, the keyword here is passive income. Imagine earning supplementary income in your sleep – sounds too good to be true? It’s not. With the right properties and having other people manage the property for you, it is very possible for you to make money while you plan your upcoming vacation in Hawaii. But is the income really passive? Yes and no. Yes, if your property manager will treat your property like it’s their own, which is unlikely. Therefore, in the real world, most people will need to spend a little bit of time to manage the managers, and to keep track of what they are doing and if it is inline with your expectations.
Leveraging other people’s money
Yes, you read it correctly. Unlike daily commodities, you don’t need to pay the 100% cash for real estate. As this is a hard asset that the banks can take back in-case of defaulting on payments, they will lend you up to 80% of the purchase price in the form of a mortgage. If the investor chooses to use their home equity line of credit (HELOC) to finance the down payment and all starting costs, you can effectively leverage 100% of your property using the bank’s money. How cool is that!
When you do the math before you purchase, you will already know your estimated monthly expenses and income. As the years pass, it is likely that your property’s value is now worth more than when you purchased it. Essentially, this means that as your mortgage balance is going down, your home value is going up. Everything in between is the equity on the property that your tenants helped you get. What a beauty.
Where do I look?
Real estate investment will most likely be one of the most significant investments of your life, so it’s obvious that you want to put a lot of thought into it and make an educated decision on the location. Areas where there are job growth, population growth, and low vacancy rates is what we would recommend.
When do I start?
Assuming you have the money to invest, my honest answer to you is as soon as possible. Having said that, when do you know you’re ready?
Consider asking yourself these questions:
- Is your source of income secure enough for you to be making an investment?
- What are your priorities in life? Would real estate investment help you fulfill your goals?
- Are you able to set aside some time to connect yourself with resources that will help you get your first property? E.g. time to do research, time to meet with mortgage brokers and realtors who could help you with your investment, etc.
How do I proceed?
Find a realtor who is also an investor him/herself. They will already know the best places and properties to invest in, thereby fast-tracking your learning. You also get the opportunity to leverage the knowledge and experience from the real estate investor’s team.
In addition, the team will be able to guide you through a wide range of considerations from conducting a cash flow analysis to supporting you through your concerns about the process of investing (and they could definitely relate because they’ve been in your shoes before).
You think you’re ready? Unsure? That’s okay! It’s never too early or too late to start investing in real estate. Contact Silver Keys Properties Team today by emailing us at info@silverkeysproperties to learn more about real estate investment and get advice from experienced professionals.