Before you pick your first investment, you should decide how much you’ll want to spend on a down payment. Real estate can be a risky business, so don’t invest any money you can’t afford to lose. Commercial property investors, for instance, should have around $50,000 ready to go. If you don’t have anywhere near that much, there are less pricey ways to invest.
Real estate can also be a significant investment of time. Fixing up a property isn’t easy, and even basic maintenance is a regular task you’ll have to keep up with. Some real estate investors outsource maintenance to management companies at an extra cost.
Real estate investment trusts (REITs)
One of the easiest ways for a beginning investor to dip their toes in the commercial real estate industry is through REITs. It’s similar to investing in a stock, in that you invest your money into a trust or corporation, which purchases properties. You will get a return from the dividends as the property appreciates.
Real estate funds also have high payout ratios, as much as 90% of the corporation’s incomes on the property, because they’re required by law to pay 90% of their taxable incomes to shareholders. You can learn more about xxx link to client here
Your investments are also liquid, so you don’t have to deal with the burden of selling a property. You can simply cash out by selling your shares, and the corporation will do most of the management for you.
Know the different types of real estate properties
There are several categories of real estate that you should be knowledgeable of, so that you know what you’re buying, and also because there are differences in managing each category.
The different categories of real estate are:
- Residential real estate. Of course this includes houses and apartment buildings, but also vacation properties.
- Commercial real estate (CRE) which is office buildings, retail stores, and other types of commercial businesses. They often cost more than residential real estate.
- Industrial real estate such as storage units, warehouses, and places such as factories with heavy machinery and dangerous equipment.
Each of these categories carry their own risks, different types of insurance requirements, renovation planning, and other things you can learn more about. A comprehensive online real estate school will give you a crash-course on these important distinctions, and lots of other valuable information.
Have at least 20% down payment
Even though you may be able to get a 3% down payment on your personal home (with mandatory private mortgage insurance, typically), you won’t be able to do that with inve
Investment properties carry more stringent approval requirements than owner-occupied properties, so you will need to secure at minimal a 20% down payment. It’s also worth mentioning that mortgage insurance is not available for rental properties.
Shop and compare the best interest rates
Interest rates are typically higher on investment properties than traditional mortgages, so you need to find a low mortgage payment that doesn’t overtake your monthly profits.
With that being said, it becomes important to compare types of loans like investment property loans, investment construction loans or private loans from different financial institutions and make sure you’re able to obtain the best interest rate for the property.
Don’t try flipping fixer-uppers without experience
Many people get tempted by the idea of purchasing cheap properties that need a lot of renovation, fixing them up, and selling for a profit. This is very doable and profitable for experienced real estate investors. But it is not something you should undertake in your first ventures into real estate.
To renovate those homes, you will need to build relationships with quality contractors who you can depend on for quality renovations. Many people who try this without considerable experience end up overspending on labour, materials, and time. For now you should find homes that need minor repairs and external improvements, and build professional relationships with renovation contractors.
Summary of things to be mindful of
- Rental income properties purchased as investment properties are risky.
- You will need at least a 20% down payment.
- You should always shop around for the best loan rates, not settle for the first approval.
- Buying and selling fixer-uppers requires certain finesse and experience you gain with time.
- Landlords require skills and knowledge such as basic tenant laws and basic repairs.