How To Invest In Real Estate

How To Invest In Real Estate Effectively? | A Complete Guide

There are numerous methods for earning money from real estate. So how to invest in real estate? Find out your answer in this article!

December 25, 2021

Is real estate investment profitable or not? The answer is yes. However, the success of real estate investing will depend on many factors. So how to invest in real estate to gain profit? In the following article, we will provide you with various forms of real estate investment and investing principles to avoid unnecessary troubles. This blog will also show real estate investing for beginners.

How To Invest In Real Estate

Is real estate a good place to invest?

The real estate industry has been around for a long time and its value still exists to this day. Undoubtedly, real estate is one of the most favored investments with the greatest potential for returns.

Passive income

Passive income is an effective way to build a solid financial base. Passive income will help protect you if you unfortunately fall into unemployment. It is entirely possible to generate passive income in the real estate market by renting out properties or joining real estate investment trusts (REITs). However, in several countries (e.g The United States), you need to consider the amount of property taxes you need to pay each year, which can affect your income.

Potential for price increase

In addition to passive income, real estate investors can also make money on the upside potential of the property. The upside potential is the increase in the value of an asset over time. As time goes on, an asset increases in value, and expenses can also increase. Finally, when selling property, if the school has done the research and specific planning, you will most likely make a high profit.

Financial leverage

The use of borrowed funds or various financial instruments to increase return on investment is known as the method of financial leverage. Example: You can use the leverage method to buy a house. The actual payout will be low, but that investment gives you 100% of the property value. By then, you’ve leveraged a small amount of money for potentially high profits. Real estate can also be used as collateral because it is intangible.

Poor liquidity

Real estate is a special and important commodity, so it has a high value, the profits are also large, but it involves many procedures, so the decision to buy and sell is not as fast as other goods, hence, the ability to convert into cash is less flexible. In many cases, sometimes the owner of a certain property is relatively large, its value in money is high, but in an emergency, it is not possible to cut a piece to sell and get cash immediately, but it takes a long time, sometimes to give up and missed a lot of opportunities.

Tax benefits

Real estate investments also offer the opportunity for tax deductions and discounts. With real estate, you may be able to deduct certain expenses such as the cost of owning, managing, and operating the property. However, as mentioned above, some countries have relatively strict tax policies to prevent real estate speculation. So, although you will have the opportunity to receive certain tax benefits, it is still a good idea to learn about land tax laws before deciding to invest in real estate.

Profitability

This is possibly the most important reason for a person to choose to invest in real estate. You can generate some great cash flow by investing in real estate. The money you have left after paying your mortgage interest and operating expenses will be your cash flow. Thereby, you can think about setting the right rent or asking price for the property. Also, as you pay off your mortgage interest, cash flow will only increase, similar to your equity.

How To Invest In Real Estate

How do you invest in real estate?

2022 is likely to bring new opportunities for investors. If you’re ready to enter this vast field, let’s take a look at these real estate investment strategies to start your way. We also include in some tips for investing in real estate.

Real Estate Investment Trusts (REITs)

To invest in real estate, it is not always necessary for you to buy a home. Real estate investment trusts allow you to invest in this market without having to buy physical assets. Conceptually, these funds are almost like mutual funds, except that they operate in the real estate market.

REIT (Real Estate Investment Trust), also known as real estate investment fund (Real Estate) is a type of investment in real estate and is traded on the stock exchanges (stock exchanges) like other usual fund certificates (CCQ).

The only thing you need to do is to join the REIT, then their experts will help you with real estate investment. Profits are paid in the form of dividends. You can take your dividends as income or reinvest. Some REITs operate on exchanges similar to stocks, while others are not publicly traded.

Online real estate investing platform

So how to invest in real estate online effectively? A real estate investment platform for those looking to join others in investing in a larger residential or commercial transaction. The investment is made through online real estate platforms, also known as real estate crowdfunding. It still requires capital investment, but less than what it takes to buy real assets.

Real estate crowdfunding allows investors to purchase shares of a property or development project. Depending on the type of investment, investors share in the profits of renting, selling apartments, or commercial rentals… Investors will earn money in proportion to the number of shares in the property they own

Online platforms connect investors looking to finance projects with real estate developers. In some cases, you can diversify your investments with a small amount of capital.

Long-term rental

One of the most popular methods to invest in real estate is to rent it out for the long term. When you buy a house, you can rent it out to someone else. Those earnings will be used to pay off mortgage loans as well as generate profits.

In case you are new to investing in the rental market, there is a concept that you should be interested in called house hacking, which used to be a hot topic of discussion on real estate forums. To put it simply, house hacking means that you live in your house but will rent out other rooms, through which, you are both the owner of the house and can generate income from your own house. It can be said that long-term rental is suitable for many investment strategies as well as different groups of investors.

Short term rental

Short-term rentals allow you to invest in real estate and earn different cash flows. The main types of short-term rental methods can be mentioned as motels, hotels, studio apartments, etc.

Short-term rental is considered the fastest method to recover capital, but it also carries certain risks. For short-term rentals, occupancy rates are usually only high during peak tourist seasons. On the contrary, during the current epidemic period, the occupancy rate in some places is almost zero. In addition, for short-term rental, you also need to regularly update news about the market, Search for customers and update the status of rental properties.

Group investment

If you don’t have a lot of capital but still want to invest in real estate, it is possible for you to join an investment group. When attending a real estate investment group, you can have the opportunity to cooperate with other investors who have the same goal of pooling resources. As a result, receiving a portion of the income generated through the investment is feasible.

Active investing

Active investing can be the riskiest form of investment, but in some cases, it will yield the fastest returns. Active investing is for those with a lot of experience in real estate valuation, marketing and renovation. Active investing also often requires capital and the ability to make, or monitor, repair as needed.

Those who deeply understand the market often choose real estate with high rent but the purchase price is much lower than the market price, because the current owner is having financial difficulties. Pure real estate surfers don’t usually invest in property improvements. Therefore, the investment must have the intrinsic value needed to generate a profit without any change.

Alternatively, you can also buy a house and remodel it so you can turn it around and make a profit, however, the process can often be quite complicated, especially if you’re new to investing. This means it will help you generate an attractive rental yield on your investments.

Rental authorization

Rental authorization is suitable for those who want to own rental property without the difficulty of operating it. These are like small funds that invest in rental real estate. In a typical real estate investment group, a company purchases or builds a series of condominiums or apartments, then allows investors to purchase them through the company, thereby joining the group.

An investor can own one or more self-contained living space units, but the company operating the investment group will collectively manage all of those units, handling maintenance, job postings, and interviews. In exchange for performing these administrative tasks, the company takes a percentage of the monthly rent.

A standard real estate investment group rental agreement is in the name of the investor and all homes pool the rent to avoid vacancy. So you will get some income even if your house is empty. As long as the vacancy rates for pooled units don’t get too high, there should be enough to cover the costs.

Commercial investment

Not only investment or capital gain, but there is also another form of investment that is a combination of capital gain and cash flow. For example, an investor builds a motel room for rent to exploit for about 5 years, then the house price in that area increases, the investor decides to sell the house. Thus, in the process of leasing, the investor receives cash flow, and when selling, it will earn a capital gain.

Or on a larger scale, investors can buy thousands of square meters of land, build a 20-story building, and then sell apartments from the 6th to the 20th floor to earn capital gains. With floors 1 to 5, investors can lease offices and trade centers to collect cash flow. This is a popular form of investment in many big states, especially when the demand for rental space is increasing sharply.

Read more: How To Start A Real Estate Business Effectively In 2022?

How To Invest In Real Estate

What are the real estate investing principles?

It is very necessary to discover carefully the information about the real estate project that you are interested in. It is also important to have both a broad view and a detailed look to avoid when investing in real estate for the first time.

To do that, you need to have a deep and solid knowledge of this field. To equip yourself with that knowledge, you can take our Real Estate practice exam. These tests have questions similar to those of the real estate license exam, which cover all the knowledge and skills you need to know to be a real estate agent.

In addition, you could refer to the necessary notes below.

Consider financial ability

Before buying real estate, it is important for buyers to correctly identify and evaluate their financial capabilities. To minimize the inability to repay the debt. It is not necessary that you have enough money before buying real estate, as long as you have a certain amount of money (equivalent to 60-70% of the value of the property to be purchased), the rest will be paid in installments or paid. payment according to the repayment schedule of the bank.

Carefully considered the main investor

It is one of the most important things that should be noted carefully. A reputable investor and a famous brand name in the real estate market will help buyers feel secure about the quality of the property as well as avoid unnecessary financial risks. Through the projects that have been handed over, the quality of the projects that have been put into use before, … you can objectively assess the credibility and capacity of the investor.

Surrounding infrastructure

Besides the above factors, you need to observe the surrounding infrastructure conditions. Regarding the transportation system, consider whether it is easy to move or not, or is it flooded in the rainy season? What are the problems of waste and environmental pollution in that area? The external facilities such as shopping centers, restaurants, hospitals, schools, amusement parks, … can fully create the best conditions for your life afterward.

Considered the price

You can consult more information from the internet or people with experience in this field to know the market price of the project you are interested in. But it is optimal to call the project lead consultant directly for more details and more precise pricing.

Construction and payment progress 

Many people when buying real estate often ignore the time and progress of its construction, so they will not be able to take the initiative in preparing money to pay when it is due. Because often with real estate projects, you will have to pay in different installments. Therefore, you need to carefully monitor the construction progress, make sure there is enough money before it is due to avoid trouble in this case.

Legality

The relevant documents need to be fully legal to ensure the interests of both the seller and the buyer. The types of documents that you need to consider carefully before buying are: Certificate of land use right, Investment license of the project, Construction permit, Certificate of house ownership,… To confirm If you receive the above information, please contact your local authority to avoid unnecessary conflicts or disputes.

Contract document  and other related costs

You must carefully read the terms of the agreement outlined in the contract before making a purchase decision. Boldly give feedback with information that you think is not appropriate so that both sides can adjust and supplement.

Determine liquidity

Why know how to calculate liquidity, cash flow, make money fast from real estate? Because these factors will help determine whether your real estate investment is right and reasonable from the beginning.

Investment real estate must have liquid value, buy and sell quickly, without restrictions when you want to withdraw investment capital. Cash flow should also be determined initially to assist you in choosing flexible investments. The ability to make quick money also needs to be taken into account when starting to invest in real estate. Although these parts also depend on factors such as location, utilities, residential area, infrastructure system, etc.

Always considering opportunities

Determining the volatility cycle, calculating the potential for growth, finding the right strategy for each period, the best time to sell real estate is the secret of successful investment of professional investors.

Every property has the right time to sell. Usually, holding on to real estate for a long time will increase its value. However, not knowing how to seize the opportunity will increase the risk of the investment. When holding real estate for too long without a suitable strategy, you will lose a large amount of money from your own capital backlog.

Read more: How to Become A Real Estate Developer? A Step-By-Step Guide 

Every individual will have different ways of investing in real estate. Whether you are a newbie or an experienced investor, the information mentioned above about “How to invest in real estate?” will also help you to gain success and ensure the benefits when investing in real estate.