Can anyone invest in real estate?
Yes anyone can invest in real estate. If you want to buy your own property then you will need enough money to pay the down payment and an income that is high enough to get a loan. This is hardest to achieve for your first property. After that it gets easier and easier.
Investors that do not have enough money to pay the down payment can still invest in real estate but they will have to do it indirectly by buying shares in real estates companies. There are a lot of real estate developers and management companies listed on the stock market that you can invest in. Spread your investments over several companies to reduce risk.
Does it take a lot of time to invest in property?
Some properties require a lot of management. Other requires next to none at all. Properties with long term tenants generally require little management while properties with a lot of short term rentals require more management.
Can you make a good return by investing in income properties?
Absolutely. Income properties can be a great way to build a business and a steady income. They can also be a great way to plan for retirement.
Is residential or commercial property the better investment?
They are different but it is hard to say that one is better than the other. It all depends on the individual properties.
It can however be said that residential property is easier to work with and can be a better option when your first get started. Commercial properties generally have higher up and downside and is therefore more suitable for investors with a larger portfolio.
How do I get the highest return on my property investment?
That depends on the area. There is no one solution that always is best. Study your area and see what there is a need for. It can also be a really good idea to talk to rental agents and ask what they need in their inventory and see if you can provide them with that.
With that said we are going to look on two often overlooked options that can be very profitable.
- Student housing: Student housing can often be a great investment because you can get a lot of tenants into one house and the house does not need to keep a very high standard. Location is more important that luxury. Student housing will however require more up keep and more frequent renovations than other types of properties.
- Executive rentals: Executive rentals are fully furnished rentals that are rented by companies to house workers from other areas. You can charge a lot higher rent then you otherwise would be able to. Executive rentals can therefor be very profitable but requires you to renovate the property to a high standard.
Flip or rent?
Both options have their own benefits and drawbacks. Flipping the property gives you a quicker return on your investment and let you move on to the next property quicker. It also requires less administration. Renting on the other hand will give you a steady income stream and is more profitable in the long rung. It is a great way to build a fortune and you can build equity in the houses that helps you acquire more properties. By renting the properties you get an income while the properties hopefully keep appreciating in value.
Generally speaking I recommend that you get started by flipping a few houses to build a bankroll. Once you have flipped a few houses you can start keeping houses as part of your rental portfolio. There is nothing preventing you from doing both at the same time. Flipping some houses while you keep others.
You need to develop a strategy that suits your long term goals.
How high percentage of the property price should I borrow?
This is up to you. The more money you borrow the larger the risk that you will lose your properties if the property values start going down. Using credit to grow will however leverage your growth and allow you to grow quicker. The more you borrow the quicker you can expand. You will have to try to find a balance between expansion and risk that you feel comfortable with. I usually recommend that you try to keep you loan equity percentage between 50-70% long term. IE your debt should be between 50-70% of the totally value of the properties. You can accept a higher percentage right after having acquired a new property if the renovations you plan to do will bring your percentages down into the desired range.
A more aggressive investor who wants to grow quicker can choose to borrow as much as the bank will allow. My recommendation above is developed to reduce risk and allow for long term growth even if the prices on the property market goes down during a period.
Is a fixer upper a good choice?
It might be. It all depends on what needs to be fixed and if you can do the work yourself or if you need to hire contractors. Regardless it is very important that you make detailed plans for how much you need to spend to get the house up to standard so that you know if it is a good investment or not. Always assume that there will be unexpected expenses and that you will go over budget by at-least 20%.
How much profit you will need to make for a project to be worth pursuing depends on where in your career you find yourself. If it is your first house then 10 000 might be enough for it to be worth it to do the project. If you are more experienced you might need to be able to clear 50 000 for it to be worth it.
Is real estate a good investment? Does real estate always go up?
Real estate is like any other type of investment. Some properties can be great investments while other might be horrible investments that is likely to cost a lot of money. You will need to analyze each opportunity and see if it is worth moving forward with or if it is better to keep looking for something better.
It is a common myth that real estate always go up. Hopefully most people still remember 2008 and falling house prices but increasingly I am hearing people claiming that 2008 was an exception and that house prices never will go down again. This is not true. Real estate price can and will go down in the future as well. Think of it as stock. The overall trend is up but there is nothing preventing a crash at any time. If you are able to keep your stock or real estate long term then you are likely to make money but if you are forced to sell during a crash then you can lose a lot of money.
What should I think about if I want to invest in real estate?
There are too many things for me to mention them allow. Below I will list a few of the most important and often overlook things to think about.
- Make sure that past renovations and expansions are done up to code. Make sure that they had permit for expansions. If not you might have to do costly renovations. In some cases you might even be forced to tear down the expansions.
- Always look for water and insect damage before you buy a house.
- Do not renovate to a higher standard than the area can justify. You will not get a higher rent just because you spend more money on a house in a poor area.
- Make sure you can afford the loan even if interest rates go up.
But the most important thing of all to remember when investing in real estate is
LOCATION, LOCATION, LOCATION