Moving forward with a new real estate purchase a second home to live in or rent out can cause many some stress and hesitancy. And who could blame you? Any major investment — whether you are financially secure or not — can feel like a risk. However, rates remain historically low and home values continue to appreciate, so there are several factors you can consider so that you know you’re making the most logical and beneficial decisions toward your investment.
Real estate is a tangible, cash-generating asset, much like gold or silver, and appreciates in values just like these precious metals. Being a tangible asset, however, it does not function like a bond or stock that can quickly lose value; it remains an excellent, long-term way to invest.
Real estate investors benefit from financial leverage, using a mortgage to build wealth in a way that other forms of investments do not. Real estate investment has proven to be a powerful method of creating wealth over time and there are three main forms of return-on-investment (ROI): cash flow, return on taxes and appreciation.
Intelligent Real Estate Investing is probably the greatest wealth creation vehicle of all time. Real estate investing can be one of the most stable ways to generate passive and stable cash flow, so you can “retire.” Technically speaking, to retire you need a passive income stream that will replace your current job or business income. Real estate investing, when performed well, after good education and good mentors, can provide that low stress lifestyle many dream of having yet few achieve.
Are you ready to commit?
While profiting from an investment property can be huge, for some it will likely take years so you should be prepared to financially support yourself in other ways as well as be prepared to put money into the property when things break; e.g., electrical issues, water damage, plumbing, leaky roofs, etc. A common mistake by many investors is underestimating the costs you’ll encounter.
Do you have a plan?
It may seem like common sense, but know what you’re going to with the property before you buy anything. While you can never predict what the market is going to do, you can do your best to make your investment property as desirable and reasonably priced as possible in case the market collapses down the road. No matter what type of property it is, it’s critical to have a strategic plan in place that will help you think about factors like average rent in the area, nearby schools and amenities, and any future real estate developments. If you are depending on the property as a rental, make sure you know what the vacancy rates are in the area too.
Purchasing real estate is a good way to invest your money and provide yourself some increased financial security. It’s a good way to increase cash flow and offers many profitable investment options. But, if you’re new to real estate investing, you may ask, “What is real estate investing all about? What are the benefits to me and how can I get started?” We’ll answer all those questions and help you get on your way to investing in real estate.