A quick flip through any material on financial freedom points to real estate as one of the best sources of passive income. The allure of being able to make continuous proceeds off a one-time deal is what drives a lot of people into it. While it sounds like a no-brainer, and it is; the image of the free-wheeling, rent-collecting landlord that’s often awash in the media is not usually the case.
Like every other business, real estate is a learning curve. To be a successful real estate dealer requires patience, and the willingness to learn. The simple goal for investing in real estate is to put your money to work, so it makes more money for you. Before you get started, there are a couple of things you’ll have to keep in mind:
Register a Real Estate Holding Company or a Real Estate LLC
Investing in real estate is a risk like any other investment and should be assessed as just that. If your goal is to make sizeable profits off real estate, then you will most likely be required to register a company. Registering a company allows you to reduce the personal risk associated with running a business. Most people in real estate choose to register a holding company.
The holding company, in effect, will own and manage all your real estate properties. The reasoning behind this is simple: if your investment tanks or something unfortunate happens and results in a lawsuit, your personal finances will be protected. The worst-case scenario will mean that you lose money on your investment made.
Apart from reducing your risk, registering a company helps you sort out issues of taxes and documentation easily.
Registering a real estate holding company or LLC is not much different from registering any other company. Although, you may want to get a professional attorney involved to avoid future run-ins with your local authorities.
While you can always register multiple properties under the same company, if you’re going to own properties in different states, you should probably register a different company for every state you own property in. ?
Study Your Market
Before taking up any real estate endeavor, make sure to study the market you intend to invest in. Take time out to personally investigate the value of properties within your area of choice, how much they rent for, the resale value and other relevant information.
You may need to see multiple properties before deciding on which one to go with. It’s imperative to take your time when entering into real estate. If you’re in too much of a hurry,
you might end up buying a bad property. ?
Start Small
For your first real estate deal, you should start with a small property. This affords you the opportunity to test the waters in your market. A simple duplex or a multi-unit property is an excellent place to start.
Smaller properties give you insight into the unsaid challenges of managing real estate property without the risk of significant investment. If your investment goes south, you can always sell your house as is for cash, minimizing your losses.
The more experienced you get, the easier it is to expand your holdings. Starting small is also great because it helps you avoid spreading yourself too thin too early.
Invest in Real Estate Investment Trusts?
More popularly known as REITs, Real Estate Investment Trusts are an alternative vehicle for investment in real estate that does not require you actually to own any property. REITs are structured like mutual funds. They are offered by companies that own commercial buildings.
When you invest in these companies, your investment is used to further acquire and maintain properties. They usually pay out high dividends. Investing in REITs is a popular choice with investors because of the high dividend payouts.
Although privately traded REITs have higher dividend rates than publicly traded ones, as a
rookie, you’re better off investing in a publicly-traded REIT. You can make your investments through a broker. Private investments are often made by older, more experienced players who can separate real REITs from scams.
Purchase Rental Properties
Renting out property is one of the best ways to earn passive income. If you earn enough from it, it also helps with paying off the mortgage on the house. Of course, you’ll have to make repairs and run maintenance, but you don’t have to be too smart to do all that and still earn a few bucks.
One exciting way to invest in rental properties is house hacking. House hacking is when you purchase a house with several units and live in one, renting out the rest.
You can use Airbnb to rent out your properties for a premium during high-traffic seasons if you have property near tourist attractions.
Try Flipping Homes
Flipping homes can be a very lucrative business to be in if you know how to do it right. The trick is to purchase a home at a low price, fix it up and then sell it on the market for a profit.
All that sounds easy until you put it into practice. Several problems can come along the way.
If you’re not accurate with your estimation of the renovations needed, you might end up losing money on the property.
Another challenge with this is that you usually have a small time window in which to sell in before mortgage payments make the house begin to eat into your expected profits. The goal is to sell the property as quickly as possible.
When done right, real estate is one of the most stable investments a person can make. With the exception of a few cases, real estate properties tend to appreciate with time. Experience is needed to maximize profits in real estate. The earlier you get into the business, the quicker you can learn. As you might have noticed, there are multiple ways to be a player in the industry. You don’t have to be a landlord to be a real estate investor.
