Real estate investing can be very risky, but it can also be highly lucrative. Everybody believes that location, location, location is what matters the most, but it is actually more important to know who you are dealing with. Unfortunately, there are some really unscrupulous people in the world of real estate. Consider those late night advertisements on television, where realtors promise to make you a millionaire, for instance.
First of all, you want to get a return on your investment. To invest in the illiquid asset that is real estate, you will have to take money out of your liquid assets. You need to strive to get a return rate that is the same as what it was on your liquid assets. This means that you should find a true cash flow property, and not a money pit.
Also, make sure that your investment isn’t too risky. Real estate is always risky, but some more so than others. Avoid tenant-in-common, real estate development, fixer uppers and private real estate funds for instance. Indeed, with these options, so much can go wrong that you are likely to never see a return on your investment. Instead, choose to have titles that are totally yours, on properties that are interesting. Naturally, this means you need to take the time to do research and analysis, and you must exert due diligence. Do not pick properties that will be highly time-consuming through managing them for instance. Stay away from student rentals, vacation properties and bad neighborhood homes, for instance. What you want is a long term rental opportunity with tenants with a good credit profile. This does require a commitment on your side to treat your tenants with the respect they deserve. It is impossible to never have a problem with your property, but so long as you deal with issues quickly, this shouldn’t be anything to really worry about.
You could also look for REITs (real estate investment rrusts). This means you need less investing capital up front, but the returns are not as high either. When you sign up with a REIT, your money is invested in real estate corporations. Through a REIT, you can invest in anything ranging from an industrial park to a shopping mall. You can find out how well your money is performing through the NASDAQ and stock exchange. A REIT, essentially, is like a mutual fund that only looks at real estate. Before you start, however, you need to think about a few things. Look into the economic conditions of the locations of the key holdings first. Also look into the performance history of the REIT. You should also investigate their future plans. Looking into the REIT’s manager and what their experience is. Last but not least, consider what the real estate market looks like and how this could affect how your REIT will perform.