The New Year is often a time of reflection on personal and professional goals, and inevitably those thoughts turn to finance. Am I getting what I deserve? Could I do better?
In 2018, real estate investment continues to be a leading choice for those looking to make the most of their money. The strong and steady growth of real estate in many locations means impressive interest gains, while the tangible permanence of real estate is a reassuring way to see real value when compared to the stock market. Furthermore, real estate can provide additional income in the form of tenant rent, or function as a second home or vacation destination to save you money when you visit your favorite city or beach if you choose to invest in residential real estate. However, for first-time investors, it can be a challenge to know where to start and how to make the most of funds available.
For aspiring and first-time real estate investors, building your network is an important initial step. Look for local or regional networking or learning opportunities. You can also reach out to more established real estate investors in your area, and cultivate relationships with real estate agencies to gain more insight into the markets. If you have an idea of what kind of real estate investing you’d be interested in, you can target your efforts toward other specialists.
In general, it’s good practice to specialize in a specific type of real estate so that you don’t waste time trying to learn about every opportunity and market condition out there. For instance, you might prefer industrial real estate, or commercial, or only invest in condos, rather than single-family homes. You might narrow your interest down to a specific region, or city, or even neighborhood, depending on the density and availability of real estate in that area.
Part of successful real estate investing is doing your research and understanding your market. You need to understand enough about structures, land value, and zoning or city planning to assess whether a potential investment property is worth the asking price and has the potential to grow in value over the term of your investment. You can form trusted partnerships to supplement areas that you aren’t expert in, and having a go-to property inspector or general contractor will help you immensely. If you invest in a new property only to find out 3 months later that your new investment property has significant foundation issues, your profitable investment can quickly turn into a loss.
If you’re investing in a real estate-based fund rather than sole or partner investments in individual properties, you may not need to do quite as much research, but a strong awareness of the market will still be critical to ensuring that your money is being well managed.
Successful entrepreneur and concrete business founder Jan Berkowitz is also known for his success in real estate investment. In his case, a family background of building and architecture, as well as his own on-the-ground experience helped him successfully invest in real estate and build a portfolio that allowed him to launch his dream business. Investing in real estate to build up funds gradually is a good strategy to achieve better finances, but be careful not to overreach.
In addition to investing only what you can afford to risk, new investors may not remember to factor in all the costs that they’ll face. This is part of why it helps to connect with more experienced investors. They’ll help raise your awareness of hidden costs or potential expenses that you may have overlooked. There are fees associated with real estate agents or fund managers, interest on loans or mortgage payments if the investment requires financing, and applicable taxes. Property maintenance and insurance also need to be factored in. You don’t want to risk your investment in the case of a disaster, or simple wear and tear.
If part of your strategy is to earn extra income on the property by renting it out, you’ll need to take into account operating costs. Commercial tenants often take on more maintenance costs themselves, but residential tenants generally expect you to keep up with property maintenance and to cover costs of repairs or replacements if anything breaks down.
Also consider how you might increase the value of your investment through strategic improvements. Could you boost the resale price through upgrades to the structures or grounds? Some investors really lean into this strategy, taking inexpensive, less-desirable real estate purchases, making significant but financially accessible improvements, and flipping the property at a greater value than the cost of improvements.
Real estate investment is a potentially rewarding choice, but it pays to take the time to fully understand what it takes, do your research, and build your network.