Things to Consider Before You Invest In Real Estate
Bruce Swedal
February 26, 2010
There are a number of ways in which you can invest your money in real estate, although you should avoid anyone who claims you can make huge, guaranteed profits at no risk, as there are a number of scams out there which are aimed at unwary investors.
Your property investments will usually begin with a fairly large sum of money with which you will buy your first property, although some people may enter this field of investment having inherited a property which they do not intend to live in themselves. You may be interested in property investment as a long term process, or you may be looking for a quicker profit. You might be hoping to move from one investment on to another, or just interested in buying and profiting from a single property. You intentions should shape your choice of property and your plans for making money from it.
If you are buying property in order to make money then it is a good idea to look for an area where house prices are rising, particularly if this is a fairly steady rise that is likely to continue, or if there is an obvious reason why it is probably going to carry on, for example due to investment in or development of the local area. You can also look for bargains at foreclosure auctions, where you are likely to pay less for a property then the current market rate, so that if you are then able to sell the property at the market price you will be able to make a profit. There is also the possibility of buying a property that is in need of renovation, although you will need to be sure that the cost of the work will not be greater than the increase in the property's value which it will produce.
If you are buying a house that you will be able to sell almost immediately for more than you paid, because prices are rising, or you have underpaid, or you are going to increase its value by doing some work on it, then you will be getting rid of the property fairly quickly. Ideally you will have made a good profit. If you want to continue investing in property you will be able to use your increased funds to buy a new property, and resell it at a higher price. Each time you buy and sell a property you will be aiming to make a profit and be able to buy something bigger and better, to make a larger profit next time.
If you are buying property that is likely to grow more slowly in value, perhaps as house prices gradually rise in the area, then you are probably going to want to make some money though letting it out in the meantime. The profits you make from the eventual sale will come in the longer term, which can make this a good way of saving towards your retirement; however you will also be able to accrue some income by collecting rent. This may be used simply to pay the mortgage, but you could also end up making a profit.
Successful real estate investors usually have a good understanding of the market, often with some previous experience of buying and selling property. They also know the area in which they are investing, and so are aware of where profits are likely to be made. It is often useful to have some ability in maintaining and repairing properties yourself. Contacts in the real estate market and with professional builders and other skilled workers will also be useful, as will good interpersonal skills for dealing with realtors, tenants, buyers and sellers. A thorough understanding of the legalities of property sales (and of renting out properties, if you intend to do so) as well as an ability to handle finances will be essential.
If you are interested in investing in the real estate market but do not want to get your own hands dirty and deal with all the details, then it is also possible to invest in companies that work in this area, by putting your savings into a Real Estate Investment Trust. This is similar to investing in a mutual fund, but your money will only be invested into companies that are associated with real estate. Investing in a REIT will require different investigations to investing in actual properties, and you should make sure that you understand exactly what will happen to your money before you hand it over.
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Your property investments will usually begin with a fairly large sum of money with which you will buy your first property, although some people may enter this field of investment having inherited a property which they do not intend to live in themselves. You may be interested in property investment as a long term process, or you may be looking for a quicker profit. You might be hoping to move from one investment on to another, or just interested in buying and profiting from a single property. You intentions should shape your choice of property and your plans for making money from it.
If you are buying property in order to make money then it is a good idea to look for an area where house prices are rising, particularly if this is a fairly steady rise that is likely to continue, or if there is an obvious reason why it is probably going to carry on, for example due to investment in or development of the local area. You can also look for bargains at foreclosure auctions, where you are likely to pay less for a property then the current market rate, so that if you are then able to sell the property at the market price you will be able to make a profit. There is also the possibility of buying a property that is in need of renovation, although you will need to be sure that the cost of the work will not be greater than the increase in the property's value which it will produce.
If you are buying a house that you will be able to sell almost immediately for more than you paid, because prices are rising, or you have underpaid, or you are going to increase its value by doing some work on it, then you will be getting rid of the property fairly quickly. Ideally you will have made a good profit. If you want to continue investing in property you will be able to use your increased funds to buy a new property, and resell it at a higher price. Each time you buy and sell a property you will be aiming to make a profit and be able to buy something bigger and better, to make a larger profit next time.
If you are buying property that is likely to grow more slowly in value, perhaps as house prices gradually rise in the area, then you are probably going to want to make some money though letting it out in the meantime. The profits you make from the eventual sale will come in the longer term, which can make this a good way of saving towards your retirement; however you will also be able to accrue some income by collecting rent. This may be used simply to pay the mortgage, but you could also end up making a profit.
Successful real estate investors usually have a good understanding of the market, often with some previous experience of buying and selling property. They also know the area in which they are investing, and so are aware of where profits are likely to be made. It is often useful to have some ability in maintaining and repairing properties yourself. Contacts in the real estate market and with professional builders and other skilled workers will also be useful, as will good interpersonal skills for dealing with realtors, tenants, buyers and sellers. A thorough understanding of the legalities of property sales (and of renting out properties, if you intend to do so) as well as an ability to handle finances will be essential.
If you are interested in investing in the real estate market but do not want to get your own hands dirty and deal with all the details, then it is also possible to invest in companies that work in this area, by putting your savings into a Real Estate Investment Trust. This is similar to investing in a mutual fund, but your money will only be invested into companies that are associated with real estate. Investing in a REIT will require different investigations to investing in actual properties, and you should make sure that you understand exactly what will happen to your money before you hand it over.
Highlands Ranch Realtors
Best Denver Realtors
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