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Historically, investing in real estate has been one of the best investment ventures in the United States and across many other parts of the world. However, because of the large amounts of money involved, a lot of people can be worried about getting started in this area, or just not know how to go about doing so. If you’re keen to get your money working for you in property sooner rather than later, read on for some tips you can follow to dip your toe in the water for the first time.
Create a Plan and Set Some Goals
The first step is to stop and put a plan in place before you rush out to spend money. In particular, it is important to think about what kind of goals you have for your investments, so that you know which type of investment vehicle will be best for you specifically.
For example, are you looking for a property that will bring in cash flow for you every year, or something that will create significant capital gains in a short amount of time? Perhaps you want a mixture of the two, or are looking for some land you can develop, a property you can renovate and flip, or a house that you can live in once you have retired?
When you are clear on what you want to accomplish from putting your money into real estate, you can work out a plan to help you achieve these goals. Your plan should cover things like the type of property you want to buy; how much you want to spend (broken down into individual properties if you want to purchase more than one, with budgets for renovations or development if this is involved, too); the locations where you plan to look for investments; and what business structure you will use when buying property.
Understand the Different Types of Real Estate Investments You Can Choose From
Another important thing to do before you buy any real estate is to research the different types of properties you can choose from. While you might automatically think about the most common real estate, such as a single-family house, apartment, or townhouse, there are many other options to consider, all with different pros and cons.
For example, you might want to buy up land, with the plan to build your own new house(s) on it, or you might be keen to go down the commercial property route. You could invest in warehouses, office blocks, parking garages, blocks of units, retail spaces, hotels, retirement villages, industrial estates, and various other assets.
Another alternative that can be a good choice if you don’t have enough capital available to purchase a whole property, is real estate investment trusts (REIT). With REIT investing, you pool your money with a number of other people and these funds get used to buy up numerous properties. You will then receive dividends based on the rental income generated by the trust, and/or the returns will be reinvested into expanding the property portfolio further.
Get Your Financial Papers and Credit Rating in Order
Lastly, don’t forget that anytime you want to get a loan to invest in a property, you need to show lenders that you will be a viable risk and will be able to repay them in full and on time every month. To do this, you must have all your necessary financial paperwork in order, such as your last three to five years’ worth of tax returns, a list of your assets and liabilities, and around three months of pay checks or other proof of your income. If you will be using a business to buy the property, make sure you have details of the venture’s trading history and financial position on hand, like a balance sheet, profit-and-loss statement, and tax returns.
Before you approach lenders, it is a good idea to check your credit score to ensure it will be high enough to not only have a loan approved, but to receive the type of loan terms you’re after. Once you get a copy of your current credit report, you can see if there are any issues that need to be dealt with, such as outstanding, unpaid debts or mistaken charges that you weren’t aware had been marked against your name.
If your score is low, it is beneficial to pay off as many debts as you can before you actually apply for a loan. To improve your debt ratio, think about all possible types of debts, including car and property loans, credit card statements, or student loans.
7 thoughts on “New To Property Investing? Here Are Some Top Tips For Spending Your Money Wisely”
I prefer invest in stock market than in real estate
Like you, I also prefer to invest in the stock market rather than in real estate. There is a lot more expense and legwork associated with real estate and you can get plenty of exposure to the sector via the numerous REITs that are traded instead. Thank you for stopping by and commenting.
Sound advice. I’m new to real estate investing. The one thing I’ll suggest is that things are always more expensive than you realize, so folks should account for that as well. I decided to buy a house, live in it and then rent it out when I leave. Well, when I bought the house, things needed fixing which was expense I didn’t really count on. Right now, having left, the house is turned over to a property manager with September being the first time I’m getting rental income in this fashion. Even the fees associated with managing the property are higher than expected. So, that’s something to be aware of.
In any case, I think there were several great points made in the post.
Dividend Portfolio recently posted…Rental Property Income
Thank you for sharing some of your own real world experience with home ownership. I wonder what percentage one should allocate for miscellaneous expenses as related to the price of a house. Is it realistic to add 10% or 20% to your home cost so you can factor in all those unrealized expenses that inevitably pop up. It’s always good to keep this information in mind as your final cost of buying a home never is your ‘final’ cost. As always, I appreciate your comment.
Investing in a real estate business is risky but the rewards that you’ll receive in the end is so much better than investing in the stock market. Just my opinion. Anyways, thanks for sharing this tips with us!
There will always be proponents and opponents of various wealth building methods. I’m open to all endeavors but do like the much more passive aspect of dividend investing versus the more hands on approach real estate requires. Thank you for commenting.