When it comes to investing, these days there are lots of options to choose from, including launching or buying a business, putting money into stocks, buying bonds, investing in art, currencies or other assets.
However, one method that has been a tried and true investing strategy for millions of people over the years is real estate. When you buy properties you are putting your money into something tangible, which historically has always been a good option for investors, particularly when it comes to capital gains.
If you have saved enough money to buy your first property, either alone or with others, it’s important to go about the process in a smart way. Read on for three key tips you can follow today to help you join the real estate market.
Understand the Various Types of Real-Estate Options
For starters, before you invest any money, look into the various types of real-estate options which are available. While you might originally think about investing in the standard single-family home, apartment, townhouse or the like, keep in mind that you can also look at many different types of commercial properties. This list includes warehouses, office blocks, parking garages, industrial estates, hotels, retail spaces, vacant land, blocks of units, housing for seniors (e.g. retirement villages), and more.
If you want to pool your money with other people, you can also consider real estate investment trusts – or REITs as they’re called. These involve putting money into funds (which can be traded on the stock exchange or be non-traded REITs, such as Roofstock), which are specifically used to buy properties for long-term holdings. Investors in these types of trusts earn money from the rental incomes generated by properties and distributed over the years.
Get All Your Paperwork and Finances in Order
The next step is to get all your paperwork and finances in order ahead of time. After all, there’s nothing worse than finding a great real-estate deal and then missing out on it because the bank denies your loan application due to lack of proof of income, for example, or because of some other paperwork issue. To avoid this situation, spend time preparing things before you’re actually looking at investments.
There are various types of documents you’ll likely have to have ready for lenders to see. For example, your last few years’ worth of tax returns; proof of your income and/or accumulated savings and other assets; details of any loans or other liabilities you may have; and information on your business if you’re self-employed. Don’t forget you may also need to move money around to make it available for a deposit. If this will involve selling assets to free up funds, give yourself plenty of time to get this finalized.
Another task you might want to do before you look at properties is check your credit score. While you might think it’s really high, it’s quite possible you have one or more outstanding bills that have accumulated over the years without you realizing. If so, this could be causing an issue on your credit report and mean a bank or other lender ends up denying your loan application, or offers you a smaller amount or worse rates, because of it.
Act Like You’re Running a Business
Lastly, if you want to be a successful, long-term real estate investor, it’s important to act like your investment is actually a business you’re taking care of. Proper investing shouldn’t involve spontaneous decisions to suddenly buy properties for the first time, or casual hobbies that you don’t treat seriously (unless, perhaps, you have millions of dollars and don’t mind losing money).
Before you part with money, it’s helpful to develop a detailed business plan for your property investing so you have a strong direction and can make better, more informed decisions for yourself as time goes on. This plan can cover things like your goals for the next few years; your plans for getting funding, if necessary; where you’re thinking of buying properties; the type of properties you want to purchase, and the investing strategy you plan to use; and details of any people you may want to partner with.
In addition, it often pays to create a separate legal entity (e.g. a company or trust) for your real estate holdings to be purchased in, rather than your own personal name. Make sure you speak with your accountant and potentially also a real estate attorney in advance to determine what the best choice will be for your individual needs and goals.