Strategies for Investing in Real Estate

Real estate investing is a unique investment vehicle that can add diversity to any investment portfolio. However, real estate investing requires careful planning and creative strategies based on ample research and adequate understanding of the real estate market. You can’t apply the same rules as you do in investing in stocks or bonds.

Here are some tips and tricks you should consider when investing in real estate.

Have an exit strategy

Have an exit strategy and contingency plan worked out in advance to help you maximize your profits when you sell or liquidate your investments. A good investment plan has a clear exit plan that outlines your most likely exit strategy from day one. Whether it is a penang apartment you are investing in, or a commercial property, don’t wait until you are in trouble to think about an exit. Rather, think of an exit strategy as a succession plan, or a successful transition.

    Join investment clubs, but not ‘boot camps’

If you are a novice trying your hand in real estate investments, joining an investment club can help you learn the ropes and sharpen your investing skills. Although financial planners can be employed to do the brunt work for you, you can also look at joining even though you might be a seasoned investor. Investment clubs allow you far more control over your money and learning. They also allow investors to pool resources in this age of market volatility and elephantine economic uncertainty.

However, be sure be wary and to steer clear of unnecessary boot camps, training courses or seminars. Browsing for books on real estate investing, or even the internet, can be cheaper alternatives to avoid getting sucked into expensive seminars and camps.

    Figure out your own real estate investing interests

Many types of real estate investments exist, whether it is investing in rental properties, or flipping and trading real estate. However, be sure to understand each facet of real investing and follow your own interests. There is nothing more boring that investing in something you have no interest or knowledge in.

   Insulate and insure your portfolio against potential losses

You should set aside a safe amount of money to act as a buffer against unexpected and unplanned expenses. There should be enough cash in the fund to be able to rehabilitate 10 to 15 of your portfolio of investment properties every year. Be prepared: plan for the best, but also prepare for the worst.

Insurance is the truest asset protection. In any event of a partial property loss, total property loss, or even a liability lawsuit, you could find yourself financially devastated if you are not properly insured. You could find your real estate investing career go up in smoke, or worse yet, your life savings wiped out because of an unexpected disaster. Proper insurance serves as a hedge against large losses that could potentially wreak financial havoc. However, remember to have a proper balance between being cash poor and insurance rich. Make sure the insurance premiums you pay do not place any financial burdens upon you and your investments.

Direct investing is different from investing in a REIT

Think of the tax consequences if you are deciding between a direct investment or a real estate fund / REIT. If tax deductions and capital gains taxes are integral to your expected return on investments, factor these in and go for direct investments.

     Funds are a lower-maintenance approach

Mutual funds and exchange-traded funds can possibly be a low-cost method and inexpensive strategy to invest in real estate. Think about it. In one fund, you can access a range of property types, which can include commercial malls, hotels and residential apartments.

Meanwhile, REITs are Wall Street’s approach to securitize real estate investing by turning real estate into a publicly-traded instrument. REITs are required to pay out at least 90% of their earnings. Thus, they are like regular dividend-paying stocks and offer the perk of being highly liquid.

   Consider real estate investment groups

Investment groups are small mutual funds for rental properties. If you are interested in investing in rental properties, but don’t want the hassle of having landlord duties, consider a real estate investment group. Typically, a company buys or builds a set of apartments, and investors buy these through the company, thus joining the group. The real estate investment group collectively manages all the units, taking care of the whole process from A to Z. In return, the company takes a percentage of the monthly rent. There are certain perks: for example, standard investment groups pool a portion of rent to guard against occasional vacancies. This means that you will still receive enough money to pay off your loans even if your unit is empty.

 Your own house doesn’t really count

People always look at their own homes as an investment. However, you need to consider that many costs offset the appreciation in property value of your house. This includes property taxes, homeowners association fees, maintenance, repairs, insurance and many other costs. Essentially, you will not be earning income from your own home as you would from other types of real estate investments. A real estate investment needs to produce income or appreciates in value after all costs incurred are deducted.

      Pay attention to where millennials are moving

Millennials are truly the future of the real estate market. So, it is a smart strategy to track where millennials are moving to and where they are buying homes. Although the current trend in this generation is to rent, this doesn’t mean they won’t change their outlook on buying their homes as they get older. In fact, experts say you can make money by renting to members of this generation, and then sell the house to them when they are prepared to become homeowners.