Real estate investing is one of the best ways to build wealth over time. Real estate has been a safe investment over the course of many economic cycles, and the time couldn’t be better if you want to get into real estate investing today.
However, becoming a real estate investor isn’t a straightforward process. There are many different ways to get started as a real estate investor, and choosing the best option for you can be difficult.
This article discusses how to get started as a real estate investor and the benefits and drawbacks of getting involved with real estate investing.
Why invest in real estate?
Real estate investing provides plenty of benefits regardless of your experience level and portfolio size. Below are the most common benefits you’ll experience if you want to get started investing in real estate this year:
- Building equity in a home. Building equity in your home is a great way to increase your net worth and own an asset that tends to appreciate over time. With the equity in your home, you can take out home equity lines of credit (also known as HELOCs) and do a cash-out refinance where you can use the money for a down payment on a second home.
- Property appreciation. As we alluded to above, most properties tend to appreciate the longer you own them. For example, one home in a new development may be worth $600,000 now but may jump to $800,000 in 10 years. This makes it attractive for homeowners to sell their real estate investments when home values climb.
- Cash flow and passive income. Many investors use real estate to generate consistent monthly income from their rental properties. With enough investment properties, investors can live off of passive rental income and focus on growing their real estate portfolio.
Drawbacks of investing in real estate
While real estate investing is a great way to own a home and build equity, there are several drawbacks to investing in real estate that you should consider before you buy your first property.
- Real estate is illiquid. Real estate investors often have a lot of capital tied up in their investments that are difficult to sell on short notice. This is in contrast to stock and bonds where you can sell them relatively quickly and convert them into cash within a few days at most.
- Real estate often involves risk. Purchasing investment properties is risky–especially if the home is in disrepair or needs some TLC to spruce up.
- Capital expenditures. Capital expenditures (or “cap-ex”) are major repairs you must budget for as a real estate investor. This may be replacing the roof or other utilities that are essential for the upkeep of the property.
It’s important to consider the benefits and drawbacks of any real estate investing strategy before diving in head-first. While real estate can be a great investment for many people, the drawbacks of illiquidity and high upfront costs may be enough to prevent first-time real estate investors from getting started.
Do you want to get started as a real estate investor this year? You’ll need a real estate agent who knows how to work with investors to find the right property that will generate a return on your investment. Contact Kim Holland today to find out how to get your real estate investing career started this year.