Investing in the real estate industry is one of the lucrative options available in our time. Before making a move to actualize your ambitions, due diligence should be exercised, especially since the sector can be quite volatile and risky. Here’s an outline of 4 important questions that you should ask yourself before delving further with your ambitions in real estate investments.
1. Why do you want to invest there?
The first question revolves questioning the actual ambition that drives you to think of investing in the real estate industry. It is meant to get you back to the drawing board and evaluate the precise reasons as to why investing in the real estate industry may be beneficial to you. As a beginner, you may need to focus more on the various benefits of investing in the real estate industry. Comprehensively understanding your purpose for the investment gets you moving on the right track.
2. How financially stable are you?
This question revolves around the broad concept of how to finance your real estate ambitions to ensure that you meet the goals you have set. You may need to look at your credit score and whether it qualifies you to obtain financing for your real estate projects or not. In case you have decided to pursue alternative financing options, such as partnerships, self-financing, and equity financing, you will need to exercise due diligence before investing in real estate.
3. How much of risk can you take?
The real estate industry is a risky business. Before taking a step further, you should understand the various risks in the real estate industry and whether you are willing and capable of taking them without jeopardizing your capital. Your risk tolerance levels will advise you on the kind of properties to invest in.
4. Are you self-motivated enough?
Profits in the real estate industry may be hard to come by, just like in any other business startup. You may, therefore, find yourself going for months without having made a single sale. Determination during such a tough time is crucial as it keeps you going. Being self-motivated is, therefore, a crucial quality that you should endeavor to propagate in your career as a real estate investor.
Traditional real estate investing requires a tremendous commitment of time, money and resources. As a result, most investors shy away from considering real estate as a investment option. Recently, real estate crowdfunding has emerged as a viable alternative for the average investor. Real estate crowdfunding allows investors to buy shares in single-family homes, multi-family apartment buildings, and commercial properties.
Crowdfunding in real estate offers two primary advantages.
- Investors are not required to make a large capital investment. The minimum investment for some deals is $500.
- Investors are not responsible for property management. The crowdfunding platform’s management team handles the upkeep and management of the property.
There are over 100 real estate crowdfunding platforms to choose from. Here are six crowdfunding platforms that cater to the average investor.
Fundrise offers investment in real estate projects ranging from single-family rental homes to commercial property renovations. Investors can invest for as little as $500 with Fundrise’s Starter Portfolio. For a minimum investment of $1,000, you can upgrade to one of three Core Plans — Supplemental Income, Balanced Investing, or Long-Term Growth.
RealtyMogul allows investors to invest in multi-family properties and debt securities through their two Real Estate Investment Trusts (REITs) — MOGULREIT I and MOGULREIT II. MOGULREIT I requires a $1,000 minimum investment. MOGULREIT II requires a $5,000 minimum investment.
Investors can invest in multi-family properties and student housing through Rich Uncles’ BRIX REIT. The NNN REIT gives investors the opportunity to invest in commercial, industrial, and retail properties leased to corporate tenants. Both REITs only require a $500 minimum investment.
The 1stREIT Office REIT provides investors the option to invest in commercial office properties for a minimum investment of $1,000. Since its inception, the fund has returned a dividend of 10%.
The Upside Avenue REIT gives investors the chance to invest in multi-family apartment buildings, senior living facilities, and student housing for a minimum investment of $2,000. The REIT has been in existence since 2002 and has averaged a 15 percent return on investment since inception.
Unlike the other crowdfunding platforms mentioned, Groundfloor uses crowdfunded investments to provide real estate investment loans to borrowers. The rate of return on these loans ranges from 5.5 percent to 26 percent, based on the risk level.
These are 6 of the best crowdfunding platforms for main street investors, but there are so many more out there. Before committing to one, make sure you do your research. Feel free to consult your colleagues on which one is their favorite. Hopefully, you will have a better sense of what crowdfunding are available and can make an informed decision on which one is the best for you!
Unfortunately, no one knows when the next recession is coming. This can be daunting for real estate investors and the well being of their career. Smart real investors prepare to take advantage of the discounted real estate deals that become available during an economic downturn.
Purchase Well Now
Buying the right properties today will put real estate investors in a good position during a recession. Not overpaying for properties is important. An appropriate purchase price keeps more funds available for the future. Also, properties must provide a positive cash flow.While the location of properties is always an important factor in real estate, owning properties in the wrong location could mean financial disaster in an economic downturn. Investors should select properties in communities that aren’t dependent on one industry or employer. A recession increases the probability of a single industry or employer to fail, and as residents leave the community in search of economic opportunity, investors’ rental units become vacant and unprofitable.
The other location consideration is the neighborhood. Like school teachers, real estate investors classify neighborhoods with the letters A, B, C, or D. For many investors, properties in A-class neighborhoods are too expensive for positive cash flow. During a recession, properties in B-class and C-class neighborhoods should continue to provide positive cash flow because these communities tend to attract employed, long-term renters. Landlords who want to get ready for a recession should avoid D-class neighborhoods, which will likely see an increase in evictions during an economic downturn.
Get Access to Funds
Purchase prices usually drop during a recession. Investors need to be ready with access to funds
. Some investors may be able to save up cash. Other investors should start networking now and build relationships with lenders. That way when the recession comes the lenders will already be familiar with the investor and his or her work. However, investors need to be careful that they don’t borrow so much now that they’re overleveraged when the recession hits.
Become a Real Estate Investor Before the Recession
A recession isn’t the time to start a real estate investment business
. It takes time to establish a network, generate leads, learn how to buy the right properties, and find financing. When economic conditions lower prices in the real estate market, newcomers may find that experienced investors were ready and have taken the best deals. The most essential preparation for a recession is having expertise as a real estate investor before the downturn begins.
Most new real estate investors shy away from commercial ventures because they find the prospect a little too intimidating. While there might be a slightly bigger learning curve involved, taking this path can lead to a more rewarding experience. Those new to real estate investments may be surprised to learn just what benefits are involved in investing in commercial real estate.
Earn More Income
Compared to a residential multi-family home, commercial real estate
, such as an office or retail space, can provide a significantly higher income potential. Even compared to high-performance stocks that may earn you an annual 2% to 3% return, investing in commercial property can result in a 5% to 15% return. Of course, your income potential will depend on the number of tenants, but, overall, commercial real estate offers the highest income potential.
You Can Build Equity Faster
By leveraging your investments, you can purchase more commercial properties within a shorter time frame. This is done by making a small down payment on the commercial property and financing the remainder of the purchase price. Since the lender can rely on the income potential of the property, they’re more likely to approve loans on commercial real estate. You can use this strategy to invest in several commercial properties within a shorter time frame, growing your equity faster than you would in investing in residential real estate.
There’s Less Risk
A commercial property will have many more tenants than a typical multi-family residence, so losing a tenant will have a lower impact on your income. You’ll be able to use the income generated from the rental payments from the remaining tenants to cover the difference. Additionally, commercial tenants are often expected to pay for the expenses of maintaining the property. They may have to cover the costs associated with maintaining common areas, taxes, and other building expenses.
Protect Your Investments
You’ll have more security in protecting your investments in commercial real estate. In addition to the land, which has value in itself, you’ll own the property on the land. As you develop that property to suit your tenants, any improvements you make will boost the property’s market value. Even when you lose a tenant, you still have the value and equity in that property.
Before you commit to residential real estate investments, it may be worthwhile to learn more about commercial real estate. You can make use of resources that will enable you to invest what you have as a means of getting your foot in the door while enjoying the benefits that commercial real estate investing provides. Giving it a try can result in a more positive experience than you anticipate.
The real estate market is always changing, but staying on track of real estate trends can help people to make wise investments. These five huge shifts in the real estate market are likely to be the biggest trends of 2019.
1. Longterm Renting
Only about half as many millennial are able to afford to own a home like boomers could a few decades ago. Even those who can afford to buy a home in the suburb often prefer to rent because it allows for more flexibility and proximity to work. More and more young professionals are instead choosing to see renting as a long-term housing solution.
2. Newly Constructed Luxury Rentals
The increased number of upper and middle-class rentals is leading to investors constructing luxury apartments with fancy appliances and amenities. These luxury rentals appeal to well-educated workers with money to spare and are often situated in city hubs. There is especially a growing interest in this in mid-sized, affordable cities like Charlotte, Houston, and Atlanta.
3. Single-Unit Rentals
Due to the increased interest in renting, there is more of a demand for single unit rental homes. This shift is good for investors because directly owning a home and renting it out to people often allows for higher profit potential. Single-family rentals do not usually shift with the stock market, making them a way to diversify a portfolio.
4. Multifamily Housing
Many people are starting to get creative with how they consider real estate. There are fewer people looking to strike out on their own and get single-family homes now. Instead, there is a big spike in multigenerational housing with summer homes, garage lofts, and mother-in-law suites accommodating several families in a single home. More adult children and elderly parents are living together, and there is also an increase in people who rent out bedrooms or have roommates even once they start a family.
5. More Joint Ventures
Investors can expect to see a lot of large capital partners partnering up with REITs to launch real estate ventures. This is happening because REITs had a very strong performance last year, and large capital partners provide more assets and management that can be used to advance this investment method.