How to invest in real estate without losing money
Many successful people think about investing in real estate. But how to invest in real estate? After all, this is a great opportunity not only to save your money during inflation, but also to significantly increase capital. In fact, there are many opportunities for successful business development in the market for new buildings and second homes. Traditionally, this area is considered one of the safest and most profitable ways to make money.
The article presents several options on how to properly invest in real estate, minimizing risks. This type of business allows the investor to receive passive income – in most cases, you do not need to take active steps to develop it, which allows you to direct your time and energy to another type of activity that requires more attention.
Investing in real estate is profitable for the duration of its action. It is enough to make a one-time cash investment to receive dividends for a long period. But this is far from the only advantage. The topic is covered in more detail in the sections below.
Why investing in real estate is sure to make a profit
It is important to understand that investing in real estate, like any other business, requires careful consideration of all steps. Having decided to become an investor, you should study the market and use all possible options to form your own investment portfolio. An excellent option would be to invest in various types of buildings. There are also different strategies that allow you to carry out the chosen line of business as safely as possible.
The most common option is to buy apartments. Housing has always been and will be in demand among buyers, as it is one of the most important components of a calm and comfortable life. You can profitably invest your capital at various stages: for example, the stage of building new apartments in a high-rise building or playing in the secondary market.
Before buying a house, apartment or other type of premises, you need to take care of the safety of money. Investing in real estate is a fairly complex type of business that requires careful market research, knowledge of all possible risks and pitfalls. Therefore, you need to be patient and read the literature that allows you to understand well the features of the real estate market.
One of the most popular areas for acquiring real estate is the purchase of commercial property. The new owner resells the apartments or houses, another option is a long-term or short-term lease. A similar option is possible both in new buildings and with housing from the secondary market. More details about the purposes of investing in housing are described below.
Real Estate Investment Goals
Before investing in real estate, you need to think carefully in order to correctly answer the obvious question: what is the purpose of buying a home? Only by giving an accurate and balanced answer, you can start, because the choice of strategy, the object into which the money will be poured, the duration of the investment, as well as the risks, income and payback of the entire project depend on the answer.
You can read that only a few succeed in this type of business. According to statistics, only 20% of new investors know exactly what they want and set specific goals and objectives. This makes it possible to understand the reason for so many failures. That is why it is important to make sure that:
- You will definitely realize the seriousness of your intentions and how much money will be needed to implement your plans.
- Investing in real estate is right for you. That is, the allocated assets are not the last in the budget; if necessary, it will be possible to tighten the reserves without compromising the quality of life.
- There is enough time to study the market, all its features and pitfalls, you are ready to spend efforts on understanding all the intricacies of the chosen type of business.
But the most important thing is to understand that various obstacles will arise along the way that will have to be overcome. Before starting your own business, it is important to weigh all the pros and cons, answer all the questions posed, and only then take the first step. There are many new opportunities for people who have carefully prepared and decided to take risks.
Benefits of investing in real estate
The choice of business development is a rather difficult task, because everywhere there are pluses and minuses. But, choosing an asset, many stop at buying an apartment. The most obvious advantage is the ability to get a stable foundation, because in any case, you can keep square meters for yourself and not pay more rent, having your own housing. A win-win option. Other pluses:
- Investing in real estate allows you to save money during inflation. Apartments rise in price during an unstable economy, so the invested assets will remain.
- This is a great option for generating passive income. To do this, it is enough just to rent an apartment and receive money without doing anything.
- Having chosen a suitable period on the market, the premises can be profitably sold, receiving additional income.
For businessmen who decide to obtain another citizenship, investing in real estate opens up great opportunities. Among the countries offering permanent residence for investing in the economy, you can find many Balkan states. For example, Spain, Malta, Cyprus, the island states of the Caribbean and many other interesting options.
Of course, in this case we are talking about fairly large amounts, measured in hundreds of thousands of dollars. Because in order to carry out the transaction, it will be necessary to cooperate with very serious state-owned companies. And so without competent legal assistance is indispensable.
Where to begin?
Regardless of the experience and amount of capital, an investor needs to start with training. The most important thing is to deal with the risks. You should be aware that trading in the real estate market involves many risks, so you should not start without a sufficient level of preparation. First of all, it is important to understand the following questions:
- What types of real estate investment are there?
- When can I expect to receive the first income?
- Types of objects and subtleties of the right choice.
- Legal means to finance the real estate market.
- How to avoid or minimize risks?
Today, investments in real estate can be made thanks to many government programs. Among the most common: investing your own money, using targeted bonds that allow you to make a purchase, deposits for buying apartments in new buildings. In addition, there are many other options that you can familiarize yourself with by independently studying the market. Below are the most interesting views.
Types of real estate investments
Starting to learn how to quickly start investing in real estate, newcomers to the market face the first difficulties. Because, it turns out, everything is much more complicated than just buying an apartment and starting to rent it out to everyone. At the initial stage, you should understand the basics of capital investments, presented below:
- One common option is to inject money into commercial premises or apartments. The latter option is most convenient for novice investors, since it does not require large expenditures. Buying commercial non-residential properties, which include hotels, warehouses, offices and other locations, requires sufficient experience and significantly more cash injections than the first option.
- It is equally important to carry out investments by choosing the stage of readiness of the object correctly. The transaction can be concluded for the purchase of a fully finished apartment (office, house, etc.) or at the time of commencement or construction. By signing a contract at the start of construction, you can get a lot of income in the future, but the risks of projects under construction are a riskier operation, and therefore require careful weighing and elaboration of details.
The easiest option is to buy a finished apartment on the secondary market. With no experience on how to invest in real estate, dealing with an object that is under construction is quite difficult.
If there is a desire to invest money in the facility even at the stage of laying the foundation pit, you should be prepared for the following risks: construction can be frozen for various reasons, various problems arise related to the transfer of the facility to operation, many government agencies do not give permission to connect municipal communication systems .
A lot of money is spinning in the market of new buildings and secondary housing. We are talking not only about direct investments in the object itself, but also about additional costs associated with the need to maintain it.
In addition to choosing a property, it is important to correctly calculate the terms for which investments will be invested and the payback period. This is what will be discussed below. The question of how to profitably and profitably invest in real estate is quite complicated, since there are many answers to it, but none of them will give an exact plan. Each case is individual and requires a special approach to solving problems. Because if you decide to use real estate as a means of generating income, you need to be prepared to wait. Usually, the average object pays off in the period from 7 to 12 years after purchase. In this case, several options are possible:
- The standard scenario is the purchase of an apartment on the secondary market, which will be used exclusively for rent. With a price of $30,000 and a rent of $200, it would take 12 years and 6 months to fully pay back. Of course, the figure is very approximate, because the rent can change, and you also need to remember the need for periodic repairs and tax payments.
- An alternative scenario is the purchase of an apartment in a new house. Add $30,000 for repairs to the average cost of $120,000. The rent will be, for example, 1300 dollars, that is, you can pay back the object in 10 years, and then make a profit. But you need to be prepared for unexpected expenses, as mentioned earlier.
- You can invest in commercial real estate. In this case, the situation is very similar. The average payback period for an object will be about 10 years, but it all depends on the initial amount, rent and a number of other related factors, which are very numerous. Commercial properties are not as stable as compared to apartments. The cost can be very high or fall. The same situation with the demand for rent.
- You can get dividends faster by taking advantage of the opportunity not to lease the object, but to sell it at a better price. In this case, we are talking about speculative investments, when, for example, an apartment is bought at a bargain price, and subsequently sold at a higher price. One of the ways to invest in this case is to buy an apartment at the construction stage with subsequent resale when the object is fully commissioned. Of course, it will be necessary to make repairs and wait a few years before delivery. But the payback can be from 10% to 50%. It is impossible to say exactly because of various factors: region, demand, macroeconomics, and so on.
Robert Shiller’s formula will help you learn how to choose the right development vector in the real estate market. With its help, you can evaluate the prospects of the object and decide whether to make an investment.
The methodology was developed by the Nobel Laureate in Economics, is extremely simple and understandable even for beginners who are just starting their way in this business area. When making a purchase decision, you need to calculate the ratio of the value of the object to the amount of rent for a full year of residence. Of course, you will have to study a lot of additional information in order to get reliable numbers, but this will avoid a number of mistakes and loss of money, so the effort and time are fully justified.
An approximate calculation using the Schiller formula is as follows:
The cost of the object is $25,000. With a monthly rent of $150, the annual income will be $1,800. That is, the ratio will be 13.9, which means that the number is in the range of an adequate real estate valuation, which, according to the formula, is from 10 to 15. If the final figure is less than 10, then the property is undervalued, which makes it extremely attractive for investment. If the figure is above 15, then the investment is likely to be unprofitable, since there is an overvaluation.
Of course, the calculation does not take into account many important factors: demand, competition, inflation, and so on. But for a novice investor, it is quite suitable as a basic one. In the future, you will need to expand your arsenal, otherwise you will not be able to professionally invest in real estate .
When is the best time to invest
This is an extremely complex question, which is almost impossible to answer, since there is no single answer. It has been noticed that in the summer, during the holidays, and in the winter, during the Christmas holidays, activity drops. This allows you to buy an object cheaper. On the other hand, additional factors will affect the cost. For example, the state of the economy and the political situation in the country, demand in a particular region, and others.
That is why it is impossible to answer how to invest in real estate . Statistics show that prices get lower from November to March. But even during the period of the highest prices, you can find an object at an attractive price. Especially when it comes to the need for an urgent sale. That is why you need to monitor the market constantly.
Real Estate Investment Strategies
When deciding to invest in real estate, you need to carefully consider the strategy. There are a huge number of options for different types of objects, so there will be plenty to choose from. Below are several options for those who want to try their hand at the secondary market by buying an object that is already ready for delivery or resale:
- The most reasonable option for beginners is to buy an apartment in a residential condition for subsequent rental without additional repair costs.
- Buying an apartment that needs renovation work. Because it allows, after putting it in order, to rent out housing, increasing the cost of rent, or resell it. In the second case, the price may be higher by 50%. Of course, you need to be able to correctly assess the upcoming work, otherwise, having completed the repair, you can go "in the red" even after resale.
- With a high demand for rental apartments, many real estate market players buy one large apartment in order to divide it into several studio apartments. Then these apartments are rented out at a great profit. The reverse option is the purchase of several small adjacent apartments to be combined into one large one for rent at a higher price or sale.
It is important to remember that when buying an object in which additional investments are needed, everything should be carefully calculated. Of course, the desire to get a big income is strong, but it should not outweigh common sense. Repair work is not only the need for spending, but also the time during which the situation on the market can change.
Primary market and commercial properties
The options discussed on how to invest in real estate using the example of apartments are completely viable. And especially in the case of commercial facilities or new buildings. Additionally, you can consider the option of transferring a commercial facility to a residential fund. This will significantly increase its cost.
Having gained experience and learned how to make the right choice in the primary market, you can successfully earn money. And make contributions regardless of the stage of construction. But there is a golden rule: the earlier the investment is made, the more it will bring dividends to its owner.
When investing in square meters of an object under construction, you should prepare a plan for leasing or reselling in advance. Because quite often investors buy apartments in new buildings even at the time of laying the foundation pit. And then they resell them at a later date more expensively and profitably. After all, this allows you to receive income earlier and not incur additional costs. In a good scenario, the total net income can be at least 35% of the invested amount.
Pros and cons of investing in real estate
Telling how to invest in real estate is almost impossible. Any type of business that requires investment has a number of its own characteristics, advantages and disadvantages. The main advantage of investing in square meters is the ability to earn income for many years or even decades. For example, renting apartments, while receiving rent. To increase income, it is enough to improve the facility and increase the cost of living. If we take a long-term perspective, then the price of real estate objects increases over time. The disadvantage is the long payback period and net income.
We should not forget about low liquidity. If the object needs to be sold quickly, then problems may arise. To speed up the process, you will have to significantly reduce the price, which will lead to financial losses. And the most important thing is the need for constant maintenance costs.
What to read before buying property
When deciding to invest in real estate, you need to carefully prepare. To do this, it is worth reading the specialized literature of professional economists. In addition, there are books written by people who have made a fortune in this particular business. They have gone through all the stages and are ready to share their experience. It remains only to read. The first step is to buy Robert Kiyosaki’s book "Investing in Real Estate". But no less entertaining and useful book is Real Estate Investing for Dummies by Eric Tyson. From domestic literature, it is worth familiarizing yourself with the book “Investing in real estate. How to make money without start-up capital on other people’s money" Alexey Durnev.