Investment firms and individuals alike are flocking to the world of property investment. But what, exactly, makes real estate such an attractive investment? And how can you make the most of this investment if you choose to get involved?
Why Investment Properties?
First, why are investment properties so valuable?
- Strategic possibilities. There are practically unlimited strategic possibilities for investing in real estate. Some investors greatly appreciate this flexibility. Depending on your goals, you may choose to invest in residential real estate or commercial real estate. You can opt to buy single-family or multifamily homes. You can choose different target audiences and different marketing strategies to support your real estate portfolio as well. You can optimize your portfolio for ongoing rental income generation, quick flips, or long-term gains. No two real estate portfolios are identical, nor should they be. You can shape this strategy into almost anything you need.
- Passive income. One of the biggest advantages of investing in real estate is the potential for passive income. If you buy a rental property, with the intention of hosting a tenant, you’ll initially face some startup costs and time investments. But once your property is fit and you have a paying tenant, you’ll be able to collect rent each month without lifting a finger (or, at least, collect rent without much ongoing work). This is especially true if you hire a property management company to help you with the day-to-day responsibilities of being a landlord. As long as you’ve purchased the right property, you could end up collecting hundreds of dollars each month in profit for each unit in your portfolio.
- Long-term appreciation. Real estate is one of the most reliable assets in supporting long-term growth, because it’s such a reliably necessary investment for people (and because there’s a limited supply for a growing population). If you don’t like the idea of optimizing for short-term cash flow, you can instead optimize for long-term appreciation.
- Portfolio diversification. Portfolio diversification is one of the most important financial skills to develop, since it allows you to capitalize on many different assets at once. A diversified portfolio is resistant to volatility and much less likely to suffer catastrophic losses. Because the real estate market functions somewhat independently from the stock market and other markets, it serves as an excellent way to diversify your holdings.
Why are investment properties becoming hot now?
In some ways, rental properties have been an attractive investment for decades. But there’s a resurgence of interest in them for a few different reasons:
- Low interest rates. Interest rates have risen recently, but even now, they’re near historic lows. Buying a property with a mortgage today is relatively easy, and you’ll get an attractive interest rate that can help you save money over the long term. It also produces lower monthly payments, making real estate ownership a possible prospect for more people.
- Shrinking inventory (and rising rent). New construction is slow and our current supply of properties is finite. Our inventory is shrinking due to rising demand and stagnant supply, resulting in rising rent prices, which make it even more appealing to be a landlord.
- Word of mouth. People like to talk about their recent strategies, so millions of people are talking about the possibilities of investing in real estate. Accordingly, more people are hearing about the strategy for the first time and more people are interested in trying it.
How to Get Involved
Are you interested in starting to invest in real estate? Here are some important ways to get started.
- Start saving money. Down payment minimums vary, but you can count on paying at least 5 percent of the price of your house. Whether you pay in cash or take out a mortgage, you’ll need to have plenty of capital on hand to fund the purchase.
- Watch trends in your area. Start keeping an eye on real estate trends in your area. Are housing prices going up or down? How are inventory numbers changing from day to day? Are there major changes ahead for your local neighborhoods?
- Talk to experts. Accelerate your learning by talking to experts. Hire a real estate agent, talk to real estate lawyers, and network with people who already have experience investing in property. Ask lots of questions, get recommendations for new resources, and never stop learning.
Investing in real estate isn’t the best move for everyone. There are some risks associated with buying rental properties, and there’s no guarantee the real estate market will continue growing indefinitely.
That said, if you know the risks and are willing to take them, and you’re willing to do your due diligence, you’ll be in an excellent position to succeed.