Many millionaires often share one thing in common. Despite their backgrounds, industries of choice, or age they often all believe in the power of real estate. Billionaire Andrew Carnegie famously said that 90 percent of millionaires got their wealth by investing in real estate.
Many wealthy icons still credit real estate as a path to success. Real estate investing is a great way to build passive income and secure your financial future. Thankfully there are many easy ways to start investing in real estate despite your background. From flips or note investments, it is easier than ever to start real estate investing.
Must-Have Real Estate Knowledge
Real estate moves quickly, and the market is ever-changing. Because of the ever-changing nature of real estate, it is easy to get carried away with investment and lose a lot of money if you don’t know what you are doing.Therefore, it is critical to have a clear understanding of the real estate investing basics, before you jump into real estate investing. You should have a baseline of your local market and some knowledge of what makes a good or bad investment.
- Your Local Market
- ROI: Return on Investment
- ARV: After Repair Value
Depending on your style of real estate investing, you may find vacation rentals perform better than long-term rentals, or that flips are more sought after. In some area’s mobile homes, or even land may be a worthwhile investment depending on your area.
If you invest in your local market, having a baseline knowledge of your market is critical to understand what types of investing you should do. Other important market knowledge will be: days on the market, median sales price, median list price, and preferred style of home.
How To Calculate Your Returns
Return on investment or ROI is an important calculation as it can show you what kind of returns to expect and if an investment is worthwhile in the long-term. Return on investment calculations can show you how much you can expect on a property or any type of real estate investment. You can even use this calculation on note investments or other long-term investment styles, such as buy and hold. While note and buy and hold investments are profitable it requires an exit strategy and patience to execute.The Cost Method for ROI is for properties bought in cash, like rentals. This formula is best for the return for cash flow and not equity.
Out-Of-Pocket Method is used for investments that have additional costs, such as properties bought with loans. This formula is best for the return for cash flow and not equity.
After repair value is an important calculator for those that flip properties. After repair value, or ARV for short, simple states the value of a property once repairs have been made. This is calculated using comparable property sale prices, the local market, and the value of the repairs made.
Different Kinds of Real Estate
Real estate investing comes in many shapes and sizes, but generally speaking there are roughly five types of real estate:- Land Investments
- Single Family (Residential) Investments
- Multi-Family Investments
- Commercial Investments
- Industrial Investments
What You Need to Know About The Different Kinds Of Real Estate
Who doesn’t love a blank slate? Surely land investments offer endless opportunities. Whether you want to implement a by and hold strategy, build your own apartments or homes, or maybe zone your land for commercial use, land investment is an easy investment for beginners. Land investments offer a lot of unique opportunities for an investor. Those investors with a long-term exit strategy can see large profits selling to individuals or companies if the value of the land increases.Residential real estate is a great way to be involved in your local market. Whether you choose to rent or flip homes, investing in single-family homes will always be popular. There are many ways to invest, from short term rentals (Airbnb or vacation rentals), rehabs and flips, or even long-term rentals. With a few repairs, these real estate investors can make thousands of dollars!
Multi-family investments are high earning real estate investment, while tenant management and upgrades are required these types of rentals (no matter the size), can be big earners for real estate investors. Multi-family investments include: duplexes townhomes, apartment complexes, and many more.
Commercial investments can range from plazas, single buildings, or other commercial buildings. These investments have long term tenants with minimal hassle or upgrades. Commercial investments are expensive and require a lot of upkeep.
How to Make Money
Once you have a firm grasp on your local market you can decide on what type of investment is right for you. Combined with the type of real estate you may be presented with many opportunities for your first real estate investment.- House Flipping
- Long-Term Rentals
- Short-Term or Vacation Rentals
- Buy and Hold
- Real Estate Notes
Long term rentals are the properties that will lease tenants for at least a year. These rentals are amazing passive earners and if rented to the right tenant, require minimal upkeep or repairs.
Short-term rentals are vacation or Airbnb rentals; these can be high earnings in well-traveled areas and can require minimal maintenance.
Buy and hold investments are long-term investments that require patience and understanding of the real estate market. Investors who see long term gains in value can hold on to properties that will gain in value over time.
Funding Your Real Estate investments
No matter what way you choose to invest, capital is key for investing in real estate. If you don’t have the cash to fund your investment, you will need to work with a lender who understands your real estate investments. There are many different types of lenders that can fund your real estate investments.- Traditional Lenders
- Hard Money Lenders
- Business Lenders
Hard money lenders are another source of funding for real estate investors. They offer asset-based loans (based on the property value) to secure the loan. They can be used to purchase, repair, and flip various properties. Hard money loans are often short-term loans (1-2 years) and have much higher rates because they are secure in the property value.
Alternatively, some real estate investors may use commercial or business loans to fund their real estate investments. These loans come directly from a bank and require business plans, profit points, and much more to approve.
Summary
Real estate investing is a great way to build your fortune and your future. No matter how you choose to invest in real estate, you will be among some great companies of millionaires who choose real estate to build their wealth.- Must-Have Real Estate Knowledge: You need to know the basics before you start investing. These basics include your local market, how to calculate return on investment, profits, and more.
- The Different Types of Real estate: Knowing the pros and cons of each type of investment is critical for choosing your next property.
- How To Invest In Real Estate: Whether you choose a hands-on or off approach to your investments can play a critical role in the success and profit of your investments.
- How To Fund Your Investment: If you don’t have cash upfront you will need to find a way to bankroll your investment. Depending on your investment and the style of investing, you may have more or fewer options for how to fund your investment.
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