Instead of leaving your money in your savings accounts, you could probably make investments. When you invest your money in something, the goal is to put in money today, and wait for it to grow. Investing in real estate is one of the oldest kind of investment, and probably the easiest to understand. Most investors are attracted to real estate, because the potential returns are huge and the risk involved is manageable. Even though Real Estate is one of the safest options, there are a few risks you may want to look out for:
- Do your research. As a beginner, contact your financial advisor or a local investor who’s had some experience in this field.
- Lay down all your options. No, I am not talking about a simple on a piece of paper. Create an Excel spreadsheet to analyze all your possible deals, because you can’t buy the first property you lay your eyes on. Compare the Fair Market Value (FMV), money down, improvements, mortgage/carrying costs, income, expenses and cash-on-cash ROI figure. You should make your decision after you inspect each and every factor.
- NEVER purchase a property in your own name. Instead hold those properties through special types of legal entities that are the limited liability companies or limited partnerships. That way, if your investment falls into a lawsuit, you can at least protect your personal assets and not lose all the money you’ve invested.
- Keep your sentiments and personal wants and needs away. Remember you are buying numbers. Sure, your rental property should be livable, but you don’t have to envision yourself living in that place. Pouring a lot more money into the property to get a higher rental rate can backfire.
- It is advisable to invest through REITs (Real Estate Investment Trust). Instead of direct ownership, you are buying into shares of a portfolio of properties. When you purchase shares in a REIT, you become a partial owner of those properties. So you are managing the property without much headache, because a management team is doing all the major work- collecting rent and maintenance. This may be good option for new investors, or the ones who think this field is too risky.
Real estate brings you a lot of tax benefits. So, if you it right, keeping in mind everything we discussed above, residential real estate can be a great investment for you.