Real estate investing can be a profitable business and, for many, a path to financial freedom. But as with any venture, there can be a number of pitfalls and risks beginners should be aware of. To help mitigate these risks, it is important to lay out goals and draw up a financial plan that takes into account everything from the costs you expect to incur to the size mortgage you will be taking out.
Once you have a strategy mapped out as well as a clear understanding of your risk tolerance, you should be able to focus on the different assets and options to invest in with confidence.
Get into Wholesaling
For your first purchase, consider starting with less expensive wholesale properties. Wholesaling is the process through which the wholesaler contracts a home—often one that is distressed—with a seller, shops that home around to potential buyers, and then assigns the contract to one of them. It is a less risky method for new investors as it does not require a significant amount of capital to get started. Having a solid list of potential buyers prior to making an initial offer to the seller is a good idea to counter risks.
Buy a Rental Home
Rentals are the most common way to get started in real estate investing. Renting an investment property will generate passive income over a long period of time and provide the means for you to reinvest into additional real estate purchases and expand your portfolio.
For new investors, residential rentals are much more straightforward than renting out commercial properties. Just be sure you have the time to commit to the upkeep of the property as well as to handle potential complaints from tenants.
When it comes to choosing a property type, make sure it aligns with your goals. For example, though duplexes and triplexes tend to generate higher rental income with lower relative expenses, appreciation is usually lower as compared to single-family homes.
Look into Real Estate Investment Trusts
A real estate investment trust (REIT) is a publicly traded entity that owns, operates, or finances income-generating real estate. By putting your money into a REIT, you are essentially buying a tiny piece of a portfolio owned by a corporation (or trust). As their portfolio appreciates, the trust pays out dividends to the investors. Relative to other investment options, REITs are far less time-consuming and labor-intensive and may generate steady income stream for investors. On the flipside, they offer little in the way of capital appreciation.
At Ridge Lending Group, we believe investment education is key. Call RLG today to continue this discussion and to learn how our financial experts can help grow your business