Anybody can invest. But not everybody will get the same returns on their investment. Why? Because all investments are not the same, neither are they handled the same way.
To get the best out of your real estate investment, you must take note of certain things, such as diversifying your portfolio and buying properties with the most potential. This article discusses these and more.
So, let’s begin.
Buy properties in developing areas
The location of your real estate investment property matters regarding how much dividends you get and how quick it is to get back your capital. It’s worth buying commercial property in a developing — but not fully developed — neighborhood because the property would have a much lower price than when the place gets developed. And that would likely be within a short time.
Look at it. There’s a commercial rental property (say, a building you can rent out as residential or office spaces) in an emerging neighborhood — sparsely dense buildings, industrial properties, and road networks just barely beginning construction. The cost of accommodation in such places would be low at that time.
But when more buildings emerge and the industrial setup grows after construction completes in a few years, demand for accommodation skyrockets as people rush to live and work there. There’s your chance to make a fortune.
Diversify your real estate portfolio
Most successful real estate investors do not rely on one type of property alone. They buy residential rental properties, commercial properties for lease, condominiums, shared ownership, and vacation rentals, among others. No, you don’t have to be everywhere (that’s discussed in the next point). You just need to try and spread your tentacles a bit so you don’t put your eggs in one basket. What if it crashes?
Furthermore, don’t invest only in properties located near you. While you would benefit from understanding the area you’re investing in, you would be limiting yourself. By considering investing in other cities, you’ll be leveraging a pool of other opportunities which may be better.
Invest in property managers
The truth is, as much as you want to oversee things, you can’t do it all yourself. You can’t be everywhere at the same time, especially when you have rental properties in multiple cities. Even though you can, you won’t be efficient.
Property managers are skilled professionals who are best able to manage your property on your behalf when you’re not there. They would ensure:
The current rents are paid on time
Your structure is in good condition always
Maintenance is carried out cost-effectively
Vacancies are filled quickly, and that
Tenants obey all rules in the best interests of you and your investment.
Left for you, you may overcharge or undercharge because you aren’t familiar with other cities in which you have a rental property.
Leverage financial experts
One smart way to get the best out of your real estate investment is to hire financial experts (accountants, advisors, real estate brokers, etc.).
Financial advisors keep up with market trends to know the most beneficial investments, among others. They can help you determine whether that property you’re eyeing would be a viable investment choice for you. Consequently, they help you cut down your chances for mistakes and losses.
Now, wouldn’t that be an excellent investment?
Know your onions before following paid advisors and experts
It’s an excellent idea to have a financial advisor. However, you should know your stuff before listening to them. If not, you wouldn’t know when they’re leading you wrong or away from their goals towards theirs.
You must know your financial goals and plans and have your financial advisor work in line with that. When they learn about your goals, they can better devise a plan to help you reach them. And when you know what you want and certain concepts in the real estate world, you can’t easily be misled or confused by any financial advisor.
Note that some financial experts, such as stockbrokers, do not get anything when you invest in real estate. No commissions, nothing. So they may try to lure you into purchasing a pricey non-traded REIT so they can get something out of the deal. But when you know all these and their motivation, you can’t easily fall.
Invest in single-family rentals
Industrial properties are one of the best investment options for real estate investors. If there’s a second place, it should be single-family rentals.
You see, even though single-family rentals may not provide as much profit per time, they’re reliable because they’re your safest bet for attracting the right tenant. Every family wants to have a home, although not all can afford it. So you’d always have a tenant in your property that will care for it like their own. And the rents would come in every year as the case may be.
Don’t over-leverage yourself
Leveraging is the act of using borrowed funds (mortgages) in addition to your money to increase your return on investment. It helps people afford to invest in what you normally won’t be able to afford. You make a considerable profit when the return you get is more than the interest you pay on the borrowed funds. Leveraging in itself is a great strategy. The problem comes when you overdo it.
Rental property mortgages are higher than for a primary residence. If every rental property you invest in is mortgaged, how would you cope with payment when there are prolonged dips in your cash flow?
It is important to understand that, even as an investor, dips will come. You can go broke for extended periods. That’s why you should keep some of your rentals free, and some of them financed so you have a good combo.
So when those extended dips happen, it wouldn’t be the end of your investment career.
Join a community of real estate investors. There are so many benefits of joining communities as they provide networking opportunities and insight into market trends and topics.
Find local communities that have the people and topics that matter to you and participate in a few. Watch out for groups that only try to pitch products. Go for only those that essentially enlighten or mentor you in the real estate industry.
Thanks for reading! Please let me know your thoughts and comments below.
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Sagar Sridhar is a personal finance blogger from Canada. His genuine passion for personal finance coupled with his unique style of writing is what stands out. Professionally, he is a computer engineer, agile certified and has a master’s degree in Project Management. His writing has been featured or quoted in the leading Canadian publications such as Credit Canada and many other personal finance publications. While he is juggling between his day job and blogging, he is the main author on this blog and has miles to go before making the final pit stop.