“Real estate is a proven wealth-building investment vehicle, BUT it can lose money as well (a lot of money); so you need to be diligent with your research when choosing this class of investment.” Allan Pearson
Real Estate Investing for Beginners - Investing in rental properties can generate positive income and significant tax benefits, as well as build equity from long-term appreciation. So, when you invest in real estate, your goal is to put your money to work today and make it grow so you have more money than what you started with in the future.
You have to make enough profit, or "return", to cover the risk you take, taxes you pay, and the costs of owning the real estate investment such as utilities and insurance. In other words, once you understand the basics of the game, real estate investing really can be as conceptually simple as playing monopoly.
Your goal is to buy properties, avoid bankruptcy, and generate rent so that you can buy even more properties. But "simple" doesn't mean "easy". If you make a mistake, you could find yourself broke or worse.
When you invest in residential real estate, there are several ways you can make more money:
This is when your property becomes more valuable due to:
a change in the real estate market,
the land around your property becoming scarcer or
busier such as a major shopping center going in next door, or
upgrades / changes that you make to make it more attractive to potential buyers or renters.
Real estate appreciation is a tricky game and is riskier than investing solely for cashflow income.
Cash flow in real estate is income that you get after expenses and debt are deducted. Residential real estate investment focuses on buying a real estate property, such as a single family home, dual occupancy home or an apartment building, and operating it so you collect a stream of cash from rent; which is the money a tenant pays you to use your property for a specific amount of time.
Your property's cash flow income can be
positive (income more than expenses) or
negative (expenses more than income) or
neutral (income and expenses are the same).
Your Goal, as an investor, is to create a POSITIVE flow of cash from your asset; so it pays for itself and gives you spare cash as well.
Owners of residential real estate can rightly expect to earn a rental income by letting tenants use the property for an agreed period of time (unless an overbearing government gets involved to rig the market). The rental income may be paid every week, fortnight, month or according to the payment period agreed between the property owner and the tenant.
This is income generated by "licenced professionals" in the real estate industry such as real estate agents (seller's agents and buyers agents), who make money through fees or commissions paid from buying and selling property on behalf of owners or buyers.
Real estate management agencies who get to keep a percentage of rents in exchange for running the day-to-day operations of a property. For example, a house letting agent gets to keep 8.8% of the rent for taking care of the day-to-day operations such as hiring tradesmen, collecting the rent, vetting tenants, regular property inspections, etc.
Other property related professional who earn income form property related services include (but not limited to): conveyancers/solicitors, accountants, builders, financial advisors, mortgage brokers, pest controllers, carpet cleaners, house cleaners, lawn & yard maintenance, and so forth.
For some real estate investments, this can be a huge source of profit. Ancillary real estate investment income includes things like vending machines, commercial mini-laundry facilities, advertising signs, storage units, car parking, room rentals (live-in boarders) and so forth.
In effect, they can serve as mini-businesses within a bigger real estate investment, letting you make additional money from a wide variety of potential customers.
How You Might Consider Purchasing Your Real Estate Investment Properties
There are several ways to buy your first real estate investment.
If you are purchasing a property, you can use debt by taking a mortgage out against a property. The use of OPM (Other People's Money) via leverage the value of your asset, is what attracts many real estate investors because it lets you acquire properties you otherwise could not afford to buy with cash alone; but it can be dangerous because in a falling market, the interest expense and regular payments can drive you into bankruptcy if you aren't careful in watching the cashflow of your property.
You will almost NEVER purchase a real estate investment in your own name.
Instead, for risk management reasons, you may be advised to consider holding real estate investments through special types of legal entities known as private Pty Ltd companies or non-trading Corporate Trustee over a Discretionary Trust (you should consult with a qualified financial advisor for his or her opinion as to which ownership method is best for you and your circumstances). That way, if the real estate investment goes bust or someone slips and falls, resulting in a lawsuit, you can protect your personal assets because the worst that can happen in some circumstances is that you lose the money you've invested; BUT this lets you sleep well at night because unless you've screwed up somewhere, your personal assets should be out-of-reach from an ambulance-chasing lawyer or worse still - a heartless bankruptcy administrator.
Now that you know some of the basics for residential real estate investing, why not contact the team at U1st Realty for an initial consultation to help you on your way to becoming a successful property investor.
Thank You For Reading
U1st Realty Sales BDM
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