Introduction to Real Estate Investment

Real estate is classified as one of the best, inflation-hedging, appreciating types of assets. As with any other investment, real estate investors have various physical and non-physical opportunities in the sector.

Main Takeaways

  • Being a landlord is one of the easiest ways to produce steady cash flow in real estate.
  • Flipping houses is the most effective way to earn a fast return on your investment.
  • Real estate investment trusts (REITs) enable you to gain exposure to the real estate market without purchasing, managing, or funding the assets.

Rental Properties

Buying investment properties and renting them out through AirBnB or leasing is one of the best long-term ways to generate consistent cash flow. You may either manage the property yourself or hire a property management firm such as 1907 Investment Group to do so for you. Each has its own set of advantages and disadvantages.

Self-Managed Investor:

The benefits of being a landlord include having more money in your account at the end of the day. But, as the landlord, You will be in charge of all management aspects which include paying the mortgage, property taxes, and insurance, finding tenants, resolving any issues, maintaining the property or coordinating contractors, and handling emergencies-even at 2 a.m.

Property Management:

The biggest advantage for hiring a property manager is that they handle everything from screening, bookkeeping, coordinating contractors, and making sure invoices are paid. Property managers are dedicated to ensuring your rental and tenants are well taken care of.

The disadvantage is, of course, the monthly fee charged by a property management company. Typically, the price ranges from $80 to $120.

As a homeowner, you must consider if the additional $80 in your pocket per month is worth dealing with the headaches that come with being a landlord.

Types of Real Estate

Investment properties vary in complexity, from single-family, condominiums, townhomes, multi-family, and commercial. Single-family (your typical day-to-day residential properties), multi-family (duplex, triplex, quadplex, etc.), and commercial properties (office buildings, shopping centers, event studios, ETC.) are the three most popular types of properties purchased for investment. We help analyze your investment goals to help build the best portfolio for you.

Financing

When it comes to funding an investment property, you have a lot of options. You have the option of paying cash, taking out a loan, or borrowing from your 401(k). At 1907, we suggest taking out a loan while using the cash you have to buy several rental properties to maximize your return. Speak with a lender to learn about the conditions for obtaining an investor loan.

Flipping Homes

If you are looking to make a fast or short-term investment, flipping houses is your best option. Flippers are the polar opposite of landlords; while landlords buy and hold, flippers buy with the intent of selling within three to four months for a profit.

Remodeling

Remodeling is the most well-known method of flipping. You buy a house that you believe would appreciate in value after the updates/full remodel is complete while making a considerable profit.  This plan aims to finish the renovations as quickly as possible so that the property can be sold for more than the original selling price, sum of the repairs and fees incurred, and a percentage mark-up for your time. Ensure to do your due diligence on the purchase so the opportunity for a considerable return.

This flipping method involves purchasing a home in a hot market, keeping it for a few months, and then selling it with little or no maintenance. We advise you to form strong relationships with several real estate agents who are well-versed in the industry. Use them as your real estate agent (buyer’s agents are free to use), and they can provide you with a variety of investment opportunities.

You also run the risk of not selling the property with any of these forms of flips. To reduce the chances of the property not selling, partner with someone well-versed in the real estate industry, like us 1907 investment group.

Buy & Hold

The tactic of buying and holding is the theory behind owning as many rental properties as possible. The goal is to make enough money every month from the rent to cover the expenses while clearing a consistent amount. After owning the property for the term of the mortgage, the home would be fully paid off by the rental income and then all of the monthly rent after lesser expenses would now be yours for the rest of your life. With a paid-off property, having the option to pass it on to your descendants or as an easy asset to liquidate if needed.

REIT

When a trust or company is established to purchase, manage, and sell investment assets, it is known as a real estate investment trust (REIT). REITs can be bought on the stock market, just like any other stock or ETF (exchange-traded funds).

Just like dividend stocks, REITS are for investors who want a regular income. They receive payments based on rental income then distribute that across their shareholders. REITs invest in all types of real estate properties, including commercial real estate and residential. Liquidity is also a significant benefit of owning a REIT since it is bought and sold on a major exchange.

REIGS

REITs (real estate investment groups) are similar to small mutual funds which invest in rental properties. A real estate investment group could be the answer for you if you want to buy a rental property but don’t want the hassle of becoming a landlord.

A company will typically buy or construct a series of buildings, usually apartments or a set of duplex, and then allow investors to purchase them through the company, thereby becoming members of the group. A single investor may own one or more self-contained housing units.

Much like a property management firm, they take a percentage of the property’s monthly income. In exchange, they handle all the maintenance, repairs, advertising, and tenants.

Why Invest in Real Estate?

Unlike stocks, equities, and bonds, real estate has a history of having low volatility and typically offering competitive risk-adjusted returns.

In comparison to other sources of income, real estate is also one of the most popular. Since this asset class continues to trade in the same way as the US Treasuries, it is very attractive in low interest rate environments.

Diversification

One of the other most prominent benefits of owning real estate is the diversification to your investment portfolio. When it comes to other big exchanges, real estate has little to no correlation to them, which means that real estate rarely falls with it when the stock market falls. This investment strategy ensures adequate diversification and reduces the chance of your portfolio experiencing high volatility when the market becomes unstable.

Conclusion

If properly handled, real estate can be one of the best investments in your portfolio. If you are new to real estate or don’t want to be a landlord, we strongly advise you to employ a property management company such as 1907 investment group to take care of anything. Relax and take pleasure in a consistent monthly income stream.

If you are a flipper, make sure you do a thorough valuation of the property and have the sales price you get for it exceed the home’s initial price plus the remodeling cost.

Terminology

Accredited investor: A person or a company that is permitted to trade securities without being registered with the appropriate financial authorities.

Capitalization Rate (or Cap Rate): The cap rate indicates the rate of return that is expected to be generated by either a residential or commercial property.

Capital Gains: A profit from the sale of property or an investment.

Appreciation: An increase in the value of an asset or currency.

Depreciation: A decrease in the value of an asset or currency.

Liquid Investment: An asset that you can quickly sell at any time.

Real Estate Development: A business in the process of building or renovating properties or raw land.

Real Estate Crowdfunding: A means of raising funds from a group of buyers to buy real estate assets more quickly.

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