It’s estimated that 90% of millionaires got their wealth through real estate investments. Since the 1960s, real estate investing has been the top wealth builder strategy.
However, starting with real estate investments can be intimidating. Because of that, you may need some real estate investing tips, which can be found here.
These are proven tips and strategies that will help you begin investing in the real estate market, regardless of if you are looking at New York, London, or Miami real estate.
Are you ready to dive in? If so, let’s get started.
Table of Contents
1. Determine Your Risk Threshold
When you invest in stocks, you know some are riskier than others. The same concept applies to real estate.
Purchasing physical properties is somewhat risky, and this is because there are so many things that may go wrong.
For example, when new investors decide to buy an income property, it may require several repairs through the years. Every repair you make impacts your bottom line.
You may also struggle to find and keep tenants in your property or rent to someone who doesn’t pay or treat the property with respect.
This doesn’t mean income properties are a bad idea; however, if your goal is to avoid as much risk as possible, it may be smart to put your money into real estate investment trusts or REITs. You can also work with a private equity firms to help reduce your risk.
2. Know All the Related Costs
When it comes to real estate investing for beginners, there’s a common mistake made – not knowing all related costs.
Properties require a significant investment to purchase outright. However, it’s worthwhile if you have the funds or can get approved for a loan.
Just because you purchase property, it doesn’t mean you automatically earn money. Not only that, but costs also accumulate from day one.
Some of the costs you must manage before the property makes money include:
- Utilities
- Basic maintenance
- Taxes
- Upgrades
- Yearly upkeep
Remember these costs when figuring out what type of property to purchase and what factors may affect your bottom line.
3. Diversify the Investments You Make
There’s a saying among real estate investors – the best real estate investment is one nearby.
While it’s good to know the area you want to invest in, you should not limit your potential profitability by only considering a small area.
When you consider investing in real estate in other cities and states, you have access to a larger pool of investments and, in the end, better opportunities.
By investing in bigger geographic areas, it’s possible to diversify the investments you make and will help protect your portfolio against the volatility of the local market.
4. Consider a Partner
If you are just learning how to invest in real estate, having an experienced partner may benefit you. Not only can you pool your resources to purchase more properties, but you can split the workload.
For example, if you decide to purchase an income property but don’t want to outsource the rent collection or upkeep, it’s left to you. With a partner, you can split the work to ensure it is all done in a timely manner.
5. Take Steps to Protect Yourself
When you start thinking about investing in one or several properties, it may be smart to use an LLC. With a limited liability company, you have increased risk management.
The LLC is the entity that owns the properties. If anything happens, you aren’t personally responsible.
Also, an LLC will protect your retirement fund if something occurs on the property.
It also provides “checkbook control,” which is beneficial if time is a factor in accessing your retirement funds for any type of real estate-related purchase.
Once you open an LLC using the self-directed individual retirement account, your account becomes the business, and you are given the role of business manager.
With this, you can access your funds when needed; however, this doesn’t mean you don’t need a custodian or withdraw funds for other purposes.
All funds must be used for the property, and withdrawals must be reported to the custodian.
While this is true, you aren’t charged multiple times for account changes, and you only have to report it once. This is particularly useful when it comes to paying fewer fees.
6. Set a Timeline and a Budget
It’s a good idea to set aside 50% more of your budget as reserves. This is especially important for new investors.
Your budget will typically go higher than what you expect. If you plan on rehabbing properties, fixing one issue may uncover another.
For example, if you fix a leaky pipe, you may have to replace it. When you take off the drywall to do this, you may discover mold damage.
When it comes to your timeline, use the same strategy. If your timeline is 90 days, plan for the entire process to take 120 days.
7. Be Smart About Taxes
Making money off a real estate investment is great. However, you also have to save money for taxes.
While this is true, you can take steps to keep more of the money you earn by using the tax deductions provided by the IRS.
Most experts recommend hiring an accountant to help with this. They will know the real estate tax laws for the area and help you keep more of the money you earn.
Getting Started with the Top Real Estate Investing Tips
As you can see, there are more than a few real estate investing tips for new investors that may come in handy. Be sure to keep these in mind as you venture into this wealth-building activity.
While real estate investing can be lucrative, it’s important to have a solid foundation of knowledge to avoid making costly mistakes.
Are you interested in finding more investment-related information and resources? If so, check out some of the other blogs published on our site. We publish new content regularly to help ensure you stay informed.