Unlike the last five decades, more people are renting properties nowadays, which means it's an excellent time to possess properties. There is no sign that the market is slowing down anytime soon. Investing in real estate is a very reliable way to have some tax-advantaged passive income and make money. It is profitable, but not many know how to get started. So, make sure you follow this guide until the end.
Every real estate investor wants to attain wealth. We are seeking a stable source of tax-friendly income and growth that will be recurrent. It will be a boon if these investments help us fight inflation and offer other benefits. You need to understand what you want and decide if you want to invest passively or actively.
HOW DO YOU WANT TO INVEST, ACTIVELY OR PASSIVELY?
Active investment means property management, asset management. Such investors put in their real estate expertise and experience to bring success to the project. They prepare strategic business plans that drive appreciation and rent growth. Their involvement includes and influences the buy-sell decisions, capital improvement strategy, business plan, net operating income targets, and others. Some even have to get involved in daily property management.
If you want to be an active investor, ask yourself if you have enough time to dedicate your projects. Now assess your expertise – do you have what it takes to be in this business? If it is a 'NO,' then learn it quickly or better, opt for passive investment.
There are multiple passive investing ways. If you want the benefits of real estate investments without any fuss, this is the best investment option for you. Hire trusted experts for the management part. You only have to delegate and make sure that the management professional are working with trustworthy people and having a long, successful track record.
DO YOU WANT TO INVEST IN COMMERCIAL OR RESIDENTIAL REAL ESTATE?
Now decide on which kind of property you would like to invest in; residential or commercial. Commercial real estate includes features like office, industrial, hospitality, retail, storage, and multifamily. Residential properties are those estates that have four units or smaller like quads, triplex, or family homes. Residential may be a good entry point into the industry, but lack of professional scale and professional property management can restrict your success.
Commercial Multifamily: Why
Investing in commercial multifamily is preferable for many reasons.
- Apartments got the economies of scale for overall success.
- Commercial multifamily investment is like investing in the shelter – a basic need that is always in demand.
- Moreover, investing in such real estate is favored for its safety profile. Like any other investment, it is not that risky. It has the best return after adjusting the risk.
However, it is our approach, and it doesn't have to be yours. Better, you do your own assessment, make a plan, check your risk tolerance and assess your decision. Don't chase the trend or go by soothsayers or prognosticators' words.
Investing doesn't start with a property purchase. Without proper research, your purchase can be a big disaster. Based on the health of the job market, health market, and the other flourishing industries, you get the money. In short, the market matters a lot. Prepare a plan that will perfectly align with the market and your capabilities.
Aligning your Capabilities, Business Plan and Market
There are many factors that you need to research and assess like is it in the metro or suburbs. It is for students, seniors, workers, or white collared professionals or endowed housings. Then see if you if your market is oversupplied or undersupplied. Check the rent growth, cap rate, and occupancy rate in the market. Learn the landlord-tenant laws well and stay updated on the changes. It is not fun but essential. Without it, you cannot succeed. If you are going for the passive investment, delegate this research to the professionals but do question them at times and check their records.
You can make wealth via passive income, paying down the mortgage, and equity growth. It is a blend of all. Increased cash flow leads to equity growth. Low cap rate estates in coastal areas don't generate much passive income. The investors depend on appreciation. Such an approach is precarious. Hence, we suggest you go for an investment that will give you passive income right from day one.
Real estate investment is a great way to make wealth beyond your primary job. But if you have invested in the market yet, do refer to this guide before you jumpstart.