Putting your hard-earned money into real estate investing is encouraging and tempting as a lot of people has earned huge of amount of profits from investing into properties. For those who are new to investing, it is actually the easiest to understand investment type as compared to stocks or bonds for its concept, in general, is relatively simple and straightforward: it only involves the exchange between the property owner and the buyer at an agreed price.
While it’s true that its flow is as simple as mentioned above, real estate investing is actually a complex concept. There are actually lots of investment types in real estate that require different knowledge and expertise. Well if you want to learn the basics of real estate investing, Joshua Kennon of The Balance wrote an article about real estate investing guide for new investors. He wants to help young investors to become knowledgeable on how real estate market works.
Real Estate Investing for Novices
Simply stated, when investing in real estate, the goal is to put money to work today and allow it to increase so that you have more money in the future. The profit, or “return,” you make on your real estate investments must be enough to cover the risk you take, taxes you pay, and the costs of owning the real estate investment such as utilities, regular maintenance, and insurance.
Real estate investing really can be as conceptually simple as playing monopoly when you understand the basic factors of the investment, economics, and risk. To win, you buy properties, avoid bankruptcy, and generate rent so that you can buy even more properties. However, keep in mind that “simple” doesn’t mean “easy.” If you make a mistake, consequences can range from minor inconveniences to major disasters. You could even find yourself broke or worse.
The 4 Ways Real Estate Investors Make Money
When you invest in real estate, there are several ways you can make money:
1. Real Estate Appreciation
It is when the property increases in value due to a change in the real estate market, the land around your property becoming scarcer or busier like when a major shopping center is built next door or upgrades you put into your real estate investment to make it more attractive to potential buyers or renters. Real estate appreciation is a tricky game. It is riskier than investing for cash flow income.
2. Cash Flow Income
This type of real estate investment focuses on buying a real estate property, such as an apartment building, and operating it, so you collect a stream of cash from rent, which is the money a tenant pays you to use your property for a specific amount of time. Cash flow income can be generated from well-run storage units, car washes, apartment buildings, office buildings, rental houses, and more.
3. Real Estate Related Income
It is income generated by “specialists” in the real estate industry such as real estate brokers, who make money through commissions from buying and selling a property, or real estate management companies who get to keep a percentage of rents in exchange for running the day-to-day operations of a property. This type of real estate related income is easy to understand. For example, a hotel management company gets to keep 5 percent of a hotel’s sales for taking care of the day-to-day operations such as hiring maids, running the front desk, mowing the lawn, and washing the towels.
4. Ancillary Real Estate Investment Income
For some real estate investments, this can be a huge source of profit. Ancillary real estate investment income includes things like vending machines in office buildings or laundry facilities in low-rent apartments. In effect, they serve as mini-businesses within a bigger real estate investment, letting you make money from a semi-captive collection of customers.
Knowing the basics of real estate investing is very important to minimize the risks, save time and earn profit from your investment. As a matter of fact, don’t start putting your hard-earned money into any property yet until you have completely learned enough the basics and advanced concepts of investing.
Over the years, there was a common misconception, a lot of people were actually thinking that real estate investing is only for the rich. Times has changed, real estate investing is no longer just for the rich. Whether you are rich, middle class or low-income earner, you are given equal opportunity to invest in real estate. But it is done? Erik Krattenstein wrote an article in AssetRover explaining that real estate investing is no longer just for the wealthy.
Real Estate Investing: No Longer Just for the Wealthy
Real estate investing is on the rise. Middle class entrepreneurs are finding opportunities to boost their income by investing in fix and flip (or fix and hold) real estate investments at an exciting rate.
What exactly is a flip?
Thanks to the success of several primetime television shows and the rebound of the US housing market, house flipping is on the mind of new and experienced real estate investors alike. These savvy investors find a distressed property that can be purchased at a discount, 26% below market value on average, with the goal of renovating the property and selling it for a profit or holding it for rental income.
Smaller investors are making money…
According to RealtyTrac’s 2015 US Home Flipping Report, residential property flipping is the most popular it has been since 2007; counting over 110,000 active flippers. Out of those 110,000 flippers last year, the average number of flips per investor was just 1.6–the lowest it has been in 8 years–a strong indicator that smaller investors are entering the market.
[bctt tweet=”Residential property flipping is the most popular it has been since 2007.”]
Why the rise in new real estate investors? Quite simply, they are making money. According to the research, the average finished flip was appraised at 5% above market value and sold for an average gross profit of $55,000 if it wasn’t held long term for rental income.
But where do they get their money?
The name of the game here is leverage. By bringing in a lender or equity partner, investors are able to fund these investments with just a fraction of the cash coming out of their own pockets.
The first source of funding beginner investors try is their local neighborhood bank. Banks tend to offer lower interest rates than the alternatives, and some investors feel more comfortable using a federal institution. However, investors that are not exceptionally healthy with an outstanding profile have trouble getting the financing they need from banks for a few reasons.
First, institutional financing is almost impossible to obtain with a mediocre credit score and not a great deal of liquidity. Perhaps even more importantly, bank loans take time that investors usually do not have. Time is money when it comes to real estate investing, and a delay in funding almost always means the inability to snatch up that perfect listing and a missed opportunity.
Now that everyone regardless of income status can venture into real estate investing, it all boils to down to the skills and decision making that will lead you to earn huge profits. As the saying goes, you have the edge if you have the right knowledge and skills. For starters, it’s actually not bad to mimic the habits of those who have been very successful private real estate investors.
Monevator has compiled the 7 habits of highly successful private investors in the real estate market that you can actually follow and serve as inspiration.
The Seven Habits of Highly Successful Private Investors
One of my favourite investing books is Free Capital. It profiles a dozen successful private investors, with insights into their lifestyles as well as their methods.
Free Capital is unusual in focussing on UK investors. Most investing books are about Americans. At a time when you’re more likely to meet someone in the pub who’d rather smash the system than buy shares in it, it’s nice to know you’re not the only optimistic nutter in the asylum.
All the investors profiled live off their money. They are free to invest their capital how they like, but they are also free to take the day off to go to the zoo and see the monkeys. They need never do another day in the office, unless they want to.
Given that many people live paycheque-to-paycheque, are wilfully ignorant about managing their money, shun shares, and save little towards their retirement, this drive to achieve financial freedom through the stock market is far less common than it might seem to the typical Monevator reader.
DIY private investors
What else do the private investors in Free Capital have in common?
Most obviously: They made it.
The book’s author didn’t interview a dozen people who failed to invest their way to millions. Survivorship bias looms large.1
This is especially important here, because all the ‘free capitalists’ profiled are active investors, and the academic evidence is clear. Most active share traders will fail to beat the market, and would do better in index funds.
Were the stock pickers in Free Capital skilful or lucky to end up on the right side of the bell curve of returns? Let’s leave that for another day.
In this post I want to focus on the lifestyle choices that enabled them to amass their wealth, which are equally important.
Earning returns of 20% a year makes achieving financial freedom quicker and likelier, no doubt. But without the habit of socking away cash and risking the market’s ups and downs, you’ve got no chance, whether you’re in passive funds or Bolivian small caps. Learn more here…
Those habits are very easy to master and follow if you have the dedication to learn from the most successful people in real estate investing. Regardless of where you are going to invest; like buying or selling a house in Baltimore, these habits, tips, and knowledge in investing real estate properties; whether it is residential, commercial or industrial properties – it applies. Through reading, researching and lots of practice, it is only a matter of time before you can earn money from your investment.
With the current trend of real estate investing in Baltimore currently bullish, there is a strong chance of earning by riding the trend. Now if you need money to start investing and want to sell your house fast in Baltimore, Dependable Homebuyers can help you in selling your property to the right buyer. Want to learn how? visit https://www.dependablehomebuyers.com and get started.
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