How to Start Investing in Real Estate

With interest rates at an all-time low and the potential for a recession looming in our future, now might actually be the perfect time to consider investing in real estate. That fact may be surprising to some, but it’s true. Whenever the economy is facing a downturn, sellers are much more motivated to unload properties, making it far easier for investors to negotiate fair prices and find quality properties that are within their budget. That being said, you don’t want to jump into the market blind. Real estate carries a risk, just as any other type of investment does. If you want to find success, particularly as a new investor, you’ll need to have a solid plan in place.

Determine the Type of Investment You’re Interested In The first step in creating a successful investing plan is to determine which type of investment property you are interested in pursuing. Different types of investments will require different financing options, time commitments and hands-on experience.

I should take a moment to point out that Voit provides a wide array of commercial real estate investment services, for various property types. Also, while I will mention residential real estate below, commercial real estate tends to yield a higher return. And many of the real estate concepts which apply to residential real estate can also apply to commercial real estate. “Flipping” is an example of this.
Here are a few options you might want to consider.

  • Commercial Real Estate: The term commercial real estate refers to any properties (land or buildings) used specifically for business purposes. Included in this category are industrial properties, multi-family properties, office buildings, warehouses, medical offices, hotels, retail stores, malls and more.
  • Residential Rental Properties: Residential properties are any properties used specifically for housing. As with commercial real estate, owning a residential property can create an extra steam of income if you lease the space to tenants.
  • Vacation Properties/Short-Term Rentals: Condos and resorts can be a fantastic investment option. You may also choose to use a residential property as a vacation rental (or other short-term option, such as an Airbnb).
  • “Flipping”: Some investors choose to purchase a property that requires updating, make the necessary fixes and re-sell that property for a profit. You may have seen this done for houses, but it can also be done with commercial property.
  • REIT’s: Real estate investment trusts are more like investing in a stock. While you may never actually see the property you are investing in, you are able to give your funds to a corporation or trust who buys the property and splits the profit between all of the investors without you ever having to lift a finger.
  • Crowdfunding Platforms: Similar to REIT’s, these platforms allow investors to pool their money, but they do not move funds through a trust or corporation. Instead, investors are matched directly with real estate developers.

Research, Research, Research Once you’ve decided which type of investment to pursue, you will need to diligently research the market to determine your best options. If, for example, you choose to use a crowdfunding platform, which one will you choose? Will you invest in commercial or residential? The answers to these questions will be largely determined by the amount of money you have to work with, but we will get to that a little later.

Consider Your Time As you go through the process of deciding on an investment type and researching your options, don’t forget to take into consideration the amount of time you will have available to commit to your investment. If, for example, you think it might be a great time to purchase commercial property to flip, and you plan on doing the work yourself, will you really have the time and energy it will take to get the property completed within a reasonable timeline? If you choose to hold onto your investment property, do you have what it takes to be a high-quality landlord or do you plan on shopping around to find suitable management companies? If you’d prefer a more passive role, it may be in your best interest to reconsider your chosen investment option and look more toward a crowd-funding platform or REIT.

Figure Out Financing Options Now comes the most important step; figuring out your financing. Hopefully you’ve already been honest with yourself about your budget comfort zone, but if not, now’s the time to get crystal clear on what you can afford. There’s also a good chance you may have to get a little creative with your funding. An important thing to note, however, is that you should not invest in something you cannot afford. It’s worth repeating that real estate investing always comes with a risk, so you want to make sure you’re looking at the bigger picture. If you do have to get a little creative (and if it makes sense to do so) here are some easy ways to find financing:

  • Equity in Your Existing Property: Consider taking out a loan against your current property, whether that be a commercial building or a home. This is one tactic you may be able to use to come up with a down-payment for an investment property.
  • Borrow: If you have a family member or close friend who may be willing to lend you the money at a low rate, ask them.
  • Find a Partner: This is a great option if you have some money to put down, but not necessarily enough to make a worthwhile investment.
  • Loan: You can also take advantage of the many loan options available on the market (and the amazingly low rates that are currently trending).

Remember That Location is Everything As you embark on this investing adventure, don’t forget to pay attention to property locations. The one constant in real estate is the importance of location. Property value will rely heavily on this factor and different types of properties will be worth more depending on location. Industrial property, for example, will benefit from close proximity to major roadways while residential property in a rural area may not.

Find the Right Broker Lastly, before you dive right into investing, make sure you find a reputable broker who can help you navigate the ropes. This is an imperative step, particularly for brand new investors. Using a qualified broker will ensure you’ve crossed all your t’s and dotted all your i’s and will also make sure your best interest is being represented in any negotiations and transactions that take place.

Overall, there’s never truly a bad time to invest in real estate. If you’ve got the funds, the time and the connections to make a sound investment decision, there’s no reason to hold back.

Kevin Fults | Associate
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