​THE REAL ESTATE INVESTOR

Stating the obvious, real estate is land. Land and the property on it. Investing in real estate is about investing in the short, medium, or long-term prospects of developed or developable land.

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THERE ARE 4 WAYS TO MAKE MONEY ON REAL ESTATE

APPRECIATION

The natural value of your real estate is increasing. 

CASHFLOW

The monthly net income you receive (income minus expenses).

MORTGAGE PAY-DOWN

Your debt is paid off monthly. This constantly increases your equity, the amount you “own”.

TAX BENEFITS

In certain countries, there are multiple tax benefits in real estate. However, we are not tax advisors and you so you should seek advice in your own country.

STRENGTHS

Leverage other people’s (the banks’) money.

Can provide strong monthly cash-flow.

Tangible Investment.

Limited supply.

Can require a lot of money to start, but there’s room for creativity.

The arbitrage opportunity when buying real estate means the price that you pay can be brought down significantly, due to differences in seller-to-seller circumstances linked to experience, motives, emotions, lack of research, etc.

You have direct control of your property. You can increase income and decrease expenses, unlike stocks.

People will always need a place to live.

WEAKNESSES

Much higher barrier to entry than stocks.

Variable liquidity, depending on the market.  Selling can take months or years.

Debt can be a double-edged sword. It can be used to generate wealth, but when mishandled it can also cause you a lot of pain.

Securing finance can be tricky, but can be solved with research and creativity.

Paperwork can be a pain, so stay organized!

There is usually an arbitrage opportunity when buying real estate. The price you pay can be brought up significantly (you might overpay). Circumstances differ due to factors including experience, motive, emotions, lack of research, etc.

TIPS

Great property managers can make your real estate portfolio essentially ‘passive’. A lot of people get turned off by fears of being called in the middle about plumbing repairs. First off, this isn’t usually the case, but if you prefer to be hands-off, then seek a property manager (monthly fees can be around 10% of monthly rent, but worth the time and energy spent that you could spend elsewhere).

Location, location, location!

 

Understand the area you are investing in. Drive around, get a  feel for the neighborhood, interact with the community. It will bring you to a new level of insight. Otherwise, if you are not in or familiar with an area, a great broker will be your friend.

Recommended resources:

https://www.biggerpockets.com/