For the right person, real estate investment can be very exciting as well as lucrative. However, starting in real estate investment can be challenging. Knowing the different types of real estate investment and what kind of issues are relevant in this type of activity can help. This guide will go over some of the information that is essential to investors.
Pick the Right Type of Investment
There are multiple types of real estate investment. Knowing about the different types can help investors pick the right type for them. Below are some of the most common types of real estate investment.
Rental properties are single family or apartment-style homes. Single family rental properties are a very common starting point for investors, because single family homes are abundant, easy to manage with a landlord app and relatively affordable. Apartment complexes are typically more expensive and require more upkeep, but they also generate a more reliable income than single family rental properties. This is because a single family rental property makes no money when the resident moves out, but apartments with multiple units can generate income as long as at least one unit is occupied.
Fix and Flip
A fix and flip property is a property that can be bought at a discounted rate, renovated and then sold for a higher price. For real estate investors who like DIY projects or who have a creative streak, fix and flip properties can be fun to remake and remodel. Licensed contractors are also good candidates for fix and flip properties because they have the skills and tools to make repairs on their own. Fix and flip investment is a slower type of investment that requires time and money up front.
A retail space like a restaurant or store can be a very wise investment in a good economy. When the economy is poor, profitability can wane. Real estate investors who do research and who choose a smart location for their retail space may be able to weather a poor economy better than investors who do not.
As in the case of apartment complexes, retail spaces that have multiple units may continue to make money even if one or two businesses vacate the space. Investors who maintain their retail space will find it easier to attract high-end businesses that can pay well.
Industrial Real Estate
Industrial real estate is often very specialized, with tenants requiring special accommodations for their industrial activities. Investors who accommodate these needs can often charge more. Like other types of commercial real estate, industrial real estate is affected by the economy. Some types of industrial real estate are more resilient to economic downturns than others, so the investor must decide which type is right for them.
Office space is often divided into units similar to apartment complexes. Typically, these units are leased to small and medium sized businesses. This is a very stable type of real estate investment, because businesses tend to need office space, even when the economy is slow. A typical lease for an office space will last for multiple years, so these commercial spaces tend to generate constant income.
Gather a Down Payment
Investors who want to get started in real estate investment must first get together the money. Often, investors must get a loan just like a home buyer. Typically, loans require a down payment.
Different types of loans require down payments of different amounts, so to find out how much is needed in order to buy a property, the investor must talk to a lender. The lender can evaluate the investor's loan needs and determine what kind of loan is necessary to get the investor started.
Do Research on the Real Estate Market
Before an investor can decide which property to purchase, that investor must investigate the area and determine which properties will be the most profitable. This process usually involves asking a lot of questions and exploring the economic viability of the area. Which areas are up and coming? Where is real estate most expensive and where is it cheapest? Are people moving to the area, or moving away? What are the common industries in the area, and how stable are those industries? What's the average income? Answering these questions and more can all help real estate investors determine which communities and what kind of real estate investment is best fro them.
How Real Estate Can Diversify An Investment Portfolio
One of the most important advantages real estate investing offers is a more diversified portfolio. While many investors rely solely on stocks and bonds, adding real estate to the mix offers advantages that can't be found with either of those vehicles.
First, real estate is what is known as a non-correlated investment. Investment vehicles tend to correlate to one another; that means, when one is doing well, it will affect another's performance. In the end, correlated investments can often cancel out one another's gains. Real estate is not correlated to the stock or bond markets, however, which means that performance is not dependent on the Fortune 500.
Real estate also allows investors to improve their yields through tax advantages. For instance, improvements to a property can make a tax bill lower, which can offset tax gains in other areas. Additionally, when funds are invested in new property, an investor may avoid capital gains altogether.
Work With an Experienced Real Estate Agent
For someone just getting their start in real estate investment, working with an experienced Girdwood real estate agent is important. For more information about how you can start in real estate investment, talk to your real estate agent today.