Advice For Beginners In The Real Estate Game
Today, the world of investments is a far more complicated one than our parents and grandparents were familiar with in years gone by. The time was when you put some money away in a savings account, perhaps invested in a few stocks and shares, and made regular contributions into a pension fund, and all you had to do was sit back and watch the money roll in.
Sadly, those days are well and truly in the past. Pension funds are in crisis, with those approaching retirement age fearing that they will have to keep working into their 70’s. Interest rates are so low that savings accounts are of little more value than hiding the money under your bed. And as for the stock market – the current economic climate makes this a more risky proposition than it has ever been.
No wonder so many people are exploring alternative investments as a way to make their money work harder for a financially secure future. Right at the top of the list comes real estate. Domestic property is continuing to rise in value at a consistent rate, and there are currently more buyers than sellers, pushing prices higher still.
This in turn means that first-time buyers are finding it difficult to reach that first rung on the property ladder, forcing them to rent instead. As a consequence, there is an equally high demand for rental properties, and this is where the real estate investor comes in.
Generating money
Real estate investment brings returns in two different ways. On the one hand, the property will, if you choose right, be appreciating in value, so the equity that you have sunk into it will be growing. Secondly, it will generate a monthly yield through the rent that your tenant pays.
Of course, if it was as simple as that, everybody would be doing it. There are a number of pitfalls along the way, and you need to choose carefully when selecting the type and location of property that you buy.
Fortunately, there is no shortage of reliable advice available with experts offering guidance to those looking to make money from real estate.
Do your homework
The most important piece of advice is to make sure that you understand the dynamics of the real estate market before you go diving in with your checkbook in hand. Study prices, sales patterns, and trends in different locations, and narrow in on the niche that will work best for you.
Location, location
The single largest influencing factor on the price of your property and the rental income that it will generate is its location. Bear in mind that these are two distinct factors, which is why it is so important to understand market dynamics. Just because real estate prices are skyrocketing in a particular part of a particular city does not automatically mean that there is a significant rental demand there.
Consider your tenants
There are rental markets and then there are rental markets. Tenants come in all flavors, from down-on-their-luck families with limited income, to university undergraduates, to young professional individuals and couples. Where there is a demand, you can be the supply and make a profit, but be clear about which segment you are seeking to target.
There are pros and cons to all, but a popular demographic among beginners in the property investment game is the young professionals. It is dangerous to generalize, as all people are different, but statistically, they are the least likely to give you problems such as non-payment or property damage. Going for this area of the market also means that you can look to invest in a modern, premium residence that will have fewer maintenance issues and for which you can charge a premium rent.
Focus on the numbers
Like any investment, this is all about the numbers. Do not get swayed by a property because it seems like a great deal or it is in a wonderful location or it has the most amazing décor. Run the numbers, work out your projected yield over one, three, and five years, and only sign on the line if everything stacks up.
Tread carefully
The real estate game presents unrivaled opportunities to make your money work harder and bring you exceptional returns on your investment. Follow the above tips and you stand a great chance of success. However, always remember to take advice and think before you act.
