The whole concept of real estate investing is complicated in many ways.
Creating wealth through investing in real estate is never a child’s play.
You can completely break or earn millions.
Most times, it depends on how well you use your cards.
It is the game changer in most real estate investments.
Well start with, you sure need a genuine interest in real estate.
That is what will make you the initial plunge.
But just that is never enough.
Real estate is serious business and needs strategic investment.
You need well thought out strategy to make your money work.
Moreover, you have to be in sync with the need of the times.
Ultimately it is a very important factor in determining when to enter or exit a business.
Many times, it is this sense of timing that can be your best friend.
Often people say investing in real estate is good because it yields returns in sync with inflation.
While it may be true for select types of property, there are many other elements too.
Before committing your money, you need to be very clear about the various aspects.
Only that can help you earn meaningful million from real estate.
So just like any other investment, this too needs time and analysis.
The trick is how good are you in identifying an opportunity and capitalizing on it.
So you can’t just buy a house and expect it to yield a result for you.
The cardinal rule is you have to make your money work.
Only then you can churn out meaningful wealth from it.
There are many ways of owning real estate.
The difference in valuation is in these details.
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Cashing in on Asset Appreciation
The moment we discuss real estate investing, you instantly think of a house.
In fact, studies indicate the residential investments are the most common type.
But the truth is just buying a house is never sufficient.
On an average, residential properties yield 4-5% return annually.
Especially if you have bought real estate cheap, the rate of return is often higher.
For example, if you bought between 2000 and 2003, the appreciation is relatively more.
But this is more of a long-term strategy and predominantly illiquid.
Though the rate of return is 1-2% above inflation, you can’t make money on a standalone basis.
One of the most important concepts here is that there is the benefit of compounded interest.
Think about how he make your funds work in fixed deposits.
You don’t just earn from the principal that you put in.
There is also the compounded interest on every cent that is added to the kitty.
Real estate investing is also often about this.
So if your home is worth $100,000 now, its cost will increase going forward.
So in the second year, it will be $110,000
The following year the rate of return will be again in the new principal.
So your interest will be based on that and now equals $112,500.
Therefore the valuation sees a semi-geometric progression.
Based on the timing of your buy, your asset appreciation may be significantly higher/lower.
So the cardinal rule is often about making sure that you invest in an asset with scope to expand.
That is the first most important truth about investing in real estate.
It will never be wise to simply buy a property because it is cheap.
It becomes very important to assess the long-term potential.
Only then can you make sure about future gains.
Real Estate Investing from Rents
I am sure that you have heard the quote, ‘cash is king.’
Well, you can truly judge its worth in terms of investing in real estate.
So when you are buying a property, think about the long-term utility.
Here again, you have to be clear about the exact objective of your investment.
Real estate investing can be for either personal use or generating wealth.
So if it is for creating more wealth, always consider the option of renting.
Whether it is commercial or residential real estate, rentals can help create necessary cash flow.
So irrespective of the percentage increase in asset valuation, it provides a steady income.
In many ways, it is like a dividend stock.
Irrespective of your returns from the stock, you can keep earning the dividend.
The dividend in many ways is a steady source of income.
Many times, it is this dividend earning that helps you buck the trend.
Even in many tumultuous situations, it keeps the cash flow intact.
The rentals too serve the same purpose.
It keeps the money channels open.
So it also helps address the biggest drawbacks of investing in real estate, creating illiquid assets.
This is, in fact, a very big advantage.
It can come handy in many situations.
Ready cash is a necessity at many points in time and rentals help you with this.
Moreover, this type of real estate investing creates an additional source of income.
Whether for commercial or residential properties, real estate leases are on a monthly basis.
As a result, you get a source of ready income and convenient cash.
It also creates a steady cashflow in your investment cycle.
If required, you can deploy this cash for additional investments.
This is real estate investing to increase wealth.
Leverage on Equity You Amassed
When you are looking to invest in real estate to increase wealth, the trick is to think laterally.
Let us assume you already have more than one property.
The question is how you can make it grow for you?
Well, you can speed up your property growth by leveraging on existing equity.
Your existing properties represent a certain amount of equity.
So what you have to do is tap into this resource and capitalize on your gains.
You can use this pretty much like a conventional portfolio.
Let’s say you bought a house for $100,000.
Now the value escalated to $300,000.
So the overall value has risen by $200,000.
So that is the equity that you have created with your property.
Now how can you use this equity to create additional wealth?
The first proposition is you sell the property right away.
So then you can get the cash and use it in any possible way.
You can buy new property or put in fixed deposit or use it in any other way.
The other option is you can borrow money against this equity.
On an average, you can borrow as much as 80% of this equity.
So this amount becomes your principal that you can use to expand your wealth base.
You can use this equity to finance new property buy or create access to the more expensive property.
But when you are looking at leveraging your equity, you have to be careful.
You must make sure that you do not overleverage yourself.
You must be very sure about your repayment capabilities.
Don’t get into a debt that you may not be able to service.
Always consider the pros and cons of the situation and take a call.
Like all other investments, caution is primary.
Look at Increasing Core Value
Investing in real estate is all about extracting maximum value.
But the question is how do you make sure that this value increase happens.
Let us understand that real estate is static property.
There is no sudden change but how do valuations alter.
Well, the truth is some houses get more money than others despite similar area.
Often the reason for this is minor or major renovation work.
Perhaps the property you have invested in is in a traditional locality.
But you incorporate all modern benefits in the house.
It goes without saying that people will be more than keen on paying a premium.
Continuous renovation and restoration work can help spike up property valuation anyway.
Whether you want to sell the real estate or put it in rent, this will help.
A fresh coat of paint or even a new carpet can bring in a fresh lease of life to your house.
There are certain types of major renovation work and some minor ones.
The amount does not really matter.
What surely does is how much value it helps bring in to the property.
The ultimate value of the property is determined by that key factor.
In fact, you can also buy properties cheaply, renovate them and sell them at a higher price.
Investing in real estate that needs some renovation can sometimes help you bag great deals.
Overall, you should not be scared of choosing properties that need some renovation.
However, you have to be very careful about the ones you choose.
While some renovation work is acceptable, it is better to avoid those with a weak foundation.
This will help you increase the intrinsic value of the overall property.
So that helps in creating wealth by investing in real estate.
Carefully Monitor Your Property Portfolio
Real estate investing is pretty much like caring for a baby.
You have to monitor your property portfolio continuously.
The early stages in a property portfolio can be real tricky.
Perhaps the best example is how you care for an infant or a toddler.
If you do not keep a watch on them, they can even harm themselves.
The same fact is true about your property portfolio.
This is exactly why investing in real estate is never a child’s play.
So you cannot just buy a property and relax.
Please do not be under the misconception that it will take care of itself.
You have to constantly keep an eye on its condition.
If need be, you also need to appoint a caretaker.
They will make sure that every bit of the property is well cared for.
Also, you have to be very careful about both the real estate agent and the tenants you choose.
A small mistake can cost you a lot if you are not careful.
A wrong choice of the tenant can also make eviction difficult.
So the future prospect of your property is also compromised.
As a result, caution and care are the buzz words when you are investing in real estate.
You have to be very sure about the people you handover keys too.
If they are not careful, the incremental maintenance cost also tends to increase.
Well, that can only mean that your wealth is getting depleted.
Remember the old adage in investment circles.
You have to take all steps to make sure your property is in safe hands.
Carefully consider your decision before jumping on the bandwagon.
That will make sure that you can preserve the portfolio value in a comprehensive manner.
Invest in REIT
REIT stands for real estate investment trust.
This is one of the best ways to increase indirect exposure.
At the same time, this format helps you get realistic price appreciation.
In a way, this is the stock market’s variation of trading in property publicly.
As the name indicates, a REIT uses investors’ money to buy properties.
The Trust jointly oversees these properties.
Give their similarity with stocks; the REITs are also transacted through major exchanges.
The trust often pays as much as 90% of the profit as dividend.
This is the key step enables them, to keep its status as a REIT.
Moreover, it also saves a considerable amount of corporate income tax.
So when you weigh the pros and cons, REITs represent absolute value.
They provide a strong investment foundation.
At the same time, it also offers a steady source of income.
Most importantly a REIT is a far more flexible investment opportunity.
Investors can choose the type and extent of their real estate investment.
With the REIT fund handling your finances, you can relax to a large extent.
You do not have to monitor your portfolio minute by minute.
So, in other words, you do not need any external help.
If at all you want the cash, the fund organizes it for you.
You don’t have to employ a bevy of people to understand the operations.
Most importantly Even if you want to cash in your investment, it is fairly simple.
You don’t have to contact any real estate agent to sell on your behalf.
Buying and selling become as simple as a click of the mouse.
Another advantage of a REIT is that it maintains a certain degree of dynamism.
Your portfolio will never be dull or drab.
They will always make sure that it generates value for you at every step.
Need to Recognize Losses and Act Upon
Being alert is the cardinal rule in every type of investment.
So when you are investing in real estate, you have to be careful.
It is possible that you may book losses at certain points.
The best solution is to stop brooding about them and cutting your losses.
This serves a dual purpose.
On the one hand, it prevents future losses.
On the other, it also provides an opportunity to recoup these losses.
As the old saying goes, it never makes sense to carry dead weight.
It will slow down the overall pace of profit.
At the same time, it will also bring about a slowdown in cash flow.
Don’t hold on to a bad investment hoping that it will yield better value in future.
That is perhaps one of the biggest mistakes in real estate investing.
No one knows how tomorrow is going to pan out.
So if you have an investment that is running in losses, it is better to sell it.
In that way, you will be able to focus better on the properties that are profitable.
You can also diversify more constructively to enhance your profitability.
But the first step is accepting a loss and moving ahead.
Investing in Real Estate Needs Patience and Perseverance
You have to have a clear objective in mind and plan out your future goals.
In that way, you can look towards creating value-based investment.
Investing in real estate can unleash value depending on the choice of real estate.
Remember you don’t have to narrow down to the only residential real estate.
You can also diversify into the commercial real estate.
This will also help in maximizing the profit potential.
Often when you are looking to increase your wealth, it can be a key catalyst.
Therefore focus on your property portfolio carefully and cut down losses.
This will make sure that your real estate investing is profitable.