Think you want to be a real estate investor? It can be an excellent way to build a portfolio, plan for your retirement, or create a second income. But if you believe real estate investing is what you see on HGTV, think again. Real estate investing can be a part-time or full-time occupation, but it takes patience, determination, strategic thinking, and a plan.
If you’re curious about whether you can make it work, here are a few things you need to know about investing in real estate.
You Won’t Get Rich Quick
Real estate isn’t easy or quick. Getting to the closing table to buy a single piece of property can take 30 days or longer, depending on how you’re financed and what you buy. Once you have the property, then you have to decide what you’re going to do with it - remodel it and flip, rent it out, or do something else. You have to come up with a long-term strategy for each property, and you’ll pay in long before you cash out.
Have a Plan
Your plans for a specific property or an investment group might not always come to fruition, but you still need one. Create a business plan and strategy for your short and long term goals. Your plan for rental investments will be different than property flipping or investment groups. If you don’t know where you’re going or how you want to get there, you’ll end up flailing and losing a lot of money in the process.
Be Ready to Learn
Watching a few shows on television is not the education that will see you through this. Seek out other investors in your local area and learn from them. Study the local market and learn about more than the current hotspots, but also opportunities for growth. Become a real estate agent or work directly with a real estate professional you trust. Read everything you can about investing, not just real estate. Soak up as much knowledge as you can to help you make smart choices.
Some Plans Will Fail
Not all of your plans will work. Values may not go up as fast, the market may not be as hot when you’re ready to sell, or a renter may cause expensive damage. You may have few failures that cost big money before you start seeing real income. Be prepared to spend time, effort, and money on the plans that don’t work out.
Study the Local Market
We mentioned it before but let’s talk about what that really means. Reading the state or national real estate news doesn’t mean you understand anything about the Naples market. You need to keep your eyes open for new information. Look for new developments in the area. Find out which companies are relocating. Go to city council or county commission meetings to learn about what’s going on. Keep your eye on property taxes and which areas are growing or not. Know school rankings. This will inform the decisions you make about how, where, and how much to invest.
Choose From Different Investment Options
There are multiple ways to invest in real estate. Depending on your funds and your interests, you can focus on one or diversify into two or three options.
- Rental properties: Buying properties and renting them is a long-term strategy. You tend to make real income once the mortgage is paid off.
- Real estate trading: Better known as flipping, you can buy properties, hold them for a short time, and then re-sell, ideally for a profit. One common house-flipping trick involves buying cheap, fixing up a home, and selling for a much higher price.
- Real estate investment groups: One company buys and manages properties. Individual investors buy into the group and receive a portion of profits.
- Real estate limited partnerships: Similar to real estate investment groups but a partnership is only an entity for a specific amount of time.
- Real estate investment trusts (REITs): REITS are corporations or trusts formed to buy, operate, and sell income-producing properties with investors funds. You can buy into a REIT like any other stock on the stock exchange.
- Real estate mutual fund: Mutual funds invest in REITs and real estate operating companies. REITs and real estate mutual funds are both extremely liquid as you’re not directly dealing with properties in any way.
Be Prepared for Cycles
Real estate investing is not designed to be a short-term investment. Even when you flip homes, there’s time in buying, fixing, and then selling again. Real property accrues value over time, typically over years. And in the meantime, there will be cycles, times where values go up faster and then when they drop again and self-correct. Real estate investing, of almost every kind, is a study in patience and playing a long game.
Investing in real estate can be an excellent way to build a second income or secure your retirement. Like any other investment, though, there are no guarantees. Some risk is involved. If you decide to invest in real estate, it can create long-term financial gains but only if you make good decisions, have a plan, and exercise patience.
Interested in investment opportunities in the Naples area? Contact me. Let’s talk!