Investment in single-family homes or multifamily properties can be a great financial move if you do the appropriate research and learn how to pursue it correctly.
If you think you might put your money into investment properties, below are some points to weigh before you do. In addition, you can make your life easier when you own your properties if you hire a great property management company to handle the day-to-day operations.
Real Estate Appreciates
Many people go into investment properties for the monthly cash flow from rents. That’s a great reason to buy real estate, but it’s worth reminding yourself that most investment properties appreciate over time.
For example, the US Census Bureau reports that between 1965 and 2015, the average sales price for homes in the US rose from about $25,000 to $350,000. Of course, there have been down periods in the market, such as the real estate bubble that burst in 2008.
But you can still expect property values to rise over the years, if you buy in the right area. When you purchase an investment property in a suitable region, you will find your asset will almost inevitably be worth much more when you’re ready to sell.
Of course, how much more depends on many factors, but most people sell their properties for a profit when the time comes.
Never forget, however, that it’s essential to perform due diligence when you consider making an investment property purchase. Investigate the financial trends and job market in the locale you are interested in, if you hope to raise your property’s odds of growing in value over time.
You Don’t Have To Buy Properties
Most people assume you have to buy a rental home or an apartment building to invest in real estate. But technology enables us to pursue investment properties without having to purchase the asset.
For instance, you can use a crowdsourcing website such as Fundrise to put money into vetted investment properties. Then, by putting in as little as $500, you can invest in apartment buildings collectively with less risk while retaining the potential for high returns.
Some crowdsourcing websites for real estate allow participants to invest with as little as $500, so you don’t have to be wealthy to get started.
You Can Leverage Real Estate
One of the best parts of buying any real estate – from your own home to a 500-unit apartment building – is leverage. This means you borrow money from a finance company or bank to boost the value of your investment.
Let’s say you buy a $200,000 rental property that produces $20,000 in cash flow per year, so your annual return is 10%. But if you borrow 75% of the purchase price, you can increase your return to almost 20% per year.
Some investors prefer to acquire their rental properties with cash, so they don’t have to worry about a mortgage payment. But others opt for using the leverage of mortgages to increase their returns.
Plus, they can conserve their cash to buy more properties and enjoy more appreciation as they continue to expand their property portfolio.
You Can Start Small
There are many ways to get your start in real estate investing. For example, some people decide to buy a single-family home or duplex before purchasing an apartment complex thereafter.
One of the simplest ways to start in real estate is to buy a four-unit apartment complex and live in one of the units yourself. This enables you to combine your living expenses with the cost of your investment property.
Plus, you may qualify for an FHA loan with a low interest rate and a 3.5% down payment if you live in your first investment property.
Many millionaires report that investing in real estate is what made them rich, so it’s a smart choice to get started in real estate investing as soon as you can.