How to Invest in Real Estate
So you finally decided to invest in real estate, but you are unsure how to go about it? Keep reading. While investing in real estate is both satisfying and profitable, the level of success in such ventures pegs on different factors. Such factors comprise your level of expertise, the time you will dedicate to the business and your risk tolerance levels: calculated risk tolerance attracts success.
As a beginner with limited skills, your starting point should be to narrow down to a specific niche. Choosing a specific domain is a sure-fire way of focusing and growing your investment with minimum interference.
Further, create a strategy to help you run the investment hassle free. The most common real estate strategies are:
- Buy and wait: a long-term strategy where you purchase property, wait for appreciation in its value after which you sell it. For success with buy and wait, learn to differentiate good deals from the bad.
- Flipping: Here, you buy the property or a house at a lower price; you renovate or add value to it and sell after a short while for a higher value.
- Wholesaling strategy: As a real estate investor, the wholesaling strategy requires that you identify lucrative deals, find contracts for the specific projects and then sell the property to other investors or retailers. With wholesaling, you don’t have to own a thing, but you must have an eye for potentially profitable deals. Here’s how to venture in real estate
How to Invest in Real Estate
As the real estate market expands, it will be in your best interests to take a plunge today for a share of the profits. But how do you invest? Consider the following niches.
- Residential Rental Property
Instead of buying land for sale, construct houses or invest in already build property and then rent them out. And that way you become a landlord. It feels great being a landlord. First, you get to earn from your investment in terms of rent collected.
Unlike a motor vehicle that depreciates with time, the right rental property should appreciate making it more valuable. If you ever intend to sell it, the investment should cost more than when you bought it.
If you are short of finances, take up a mortgage or use your savings as a down payment and pay the rest in installments. You can, therefore, service your mortgage with rent received. After paying the mortgage fully, the rent income becomes profit.
Landlordship comes with its own share of troubles. First is the need to manage rowdy tenants who apart from destroying property will take months to pay rent besides the constant annoying calls.
Your new title also brings you maintenance and repair costs which you must plan for. In case interest rates decline, you may experience an increase in vacant units, as most tenants find it easier to buy property instead of renting. If you cannot stand challenges associated with rental properties, you are about to find a better option.
- Real Estate Trading
We also call this investment flipping and requires loads of knowledge and expertise, especially in the marketing and valuation of real estate. Unlike in the wholesaling strategy, to invest in real estate trading, you must have a wide pool of resources.
You have the freedom to choose what type of flipper you become. The first flipper buys the property but adds no value to it. To cover for value, they purchase property with a higher intrinsic value and sell it at a higher price.
As the second flipper, you will buy a good property worth its value, renovate then sell but now for more profit. The second flipping will take you more time to reap benefits.
While at it, keep a close eye on the market to know the right time to let go of the property. Failure to do so will leave you with hardly any money to pay for the mortgage or invest further and worse of all you will register great losses.
- Real Estate Investment Groups
Are you seeking an investment where you can pass management duties to another party but still get your returns? Real estate investment group is your bet. A real estate investment group is a corporation tasked with construction or purchase or real estate properties they sell to investors as rentals.
Besides becoming part of the organization, as the investor, you benefit as follows. The company searches for tenants, caters for advertisements, performs management duties all for a percentage of your rental income.
Rentals are prone to vacancies which lower you earning, to deal with the low season the group apportions a fraction of each unit rent to such a season to cushion you from lack of income. The cushioning is however limited to a certain maximum of vacant units.
Be careful to join a credible investment group or else they will eat up your returns with fraudulent operation and fees.
- Real Estate Investment Trusties (REIT)
Still not settled on how to invest in real estate, the last best alternative is REITs. Here investors pool funds together intending to invest in real estate. Majorly, they target investments such as high-end hotels, warehouses, shopping malls, office buildings, apartments, and resorts.
In Kenya, REITs are Capital Markets Authority- regulated to encourage the development of real estate despite the high financing cost which poses challenges to development. REITs operate on the same principle as stock where investors buy and sell shares.
The trustee purchases property and manages it on behalf of the investors. REITs share dividends at the end of each financial year to individual investors. There are three types of REITs: Development REITs, Income REITs, and Islamic REITs.
Are REITs your go-to real estate investments? Pick any of the following REIT managers in Kenya: UAP investment, CIC Asset Management Limited, Stanlib, etc.
The good thing with real estate investment is that with only the down payment and signing of contracts or legal papers, you own the property and can control it. Beautiful isn’t it? Start your journey to wealth creation today by investing in a combination of the above real estate domains.