Part 1
Although the real estate market has plenty of opportunities for making big gains, buying and owning real estate is a lot more complicated than investing in stocks and bonds. Before everything else, ask yourself these questions:
What is the purpose of this purchase? For my own use? For income generation? – This is an important question since the purpose usually determines the size, location of the real estate property that you will purchase.
Can I afford it? – Another critical question. Once you have determined the purpose of your spending, then you can determine whether your own cashflow is enough or lacking. If lacking, then you can plot your savings/other investments or pool funds with others (friends, family or a real estate investment company) so you can afford it.
Since real estate investment is about capital growth, it is imperative that you choose the right property at the right location, which increases the chance for better value. It is necessary to conduct research on not just the property but also the market which includes a major city’s commuter belt or close to schools, and commercial areas. Factor in tourism as well.
Buying and owning your home
While you might think that owning your own home is mostly about providing shelter, think again. If properly managed, your own home can be the single best way to invest in real estate in a first investment. This is also assuming that you are able to pay off the monthly mortgage.
If your home is in a good location, you can rent out a small space to earn income.
* If you maintain it properly and limit over-improvements, it will be more marketable plus add the market price appreciation.
Buying property
for income generation
The purpose of the property you purchase is to generate income through rent, which means you don’t really live in it. This can be through compounds, apartments or condominium units. This is one of the most time-honored ways to build wealth.
At a minimum, the rent that you receive on an investment property should cover the expenses of owning it. If it does nothing more, your tenant will effectively be paying for your investment. However, there are some things that you need to be aware of with rental properties:
* It’s not passive income. When you are the landlord/lady, you take care of overall maintenance, repairs, collections of payments, marketing; unless what you bought is a Condo-Hotel unit or you are an investor in a group of investors.
* There are vacancy factors – times in between tenants when there is no rent income.
Ancillary Real Estate
Investment Income
For some real estate investments, this can be a huge source of profit. This income includes things like vending machines and the like equipment in office buildings or laundry facilities in low-rent apartments. In effect, they serve as mini-businesses within a bigger real estate investment, letting you make money from a semi-captive collection of customers.
Choose one or two – real estate is an excellent diversification in a long-term investment portfolio or retirement plan. There so many ways to do it, it’s just a matter of choosing the one you feel most comfortable with.
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Vernon Joseph Go is an RFP®–Registered Financial Planner | Licensed Real Estate Broker | Content Creator | Podcast-on-the-go Producer & Host