Real estate is one of the most stable investments you can make. In addition to that stability, many experts predict that real estate prices will continue to rise in the coming years. Real estate investing could be a great option if you’re looking for a way to protect your money from inflation and market fluctuations.
However, suppose you’re entirely new to this industry and don’t know where to start with your research or how to analyze properties. In that case, this article will cover all of those aspects so that you can begin investing as soon as possible!
Know the market you want to invest in
It is essential to know what is happening in the local housing market and how it will affect your investment. You should also look at historical data, such as home values over time and current trends for inventory levels and sales rates (how many homes are being sold).
Real estate syndication can be an effective way to invest in real estate without worrying about the hassle of managing the property yourself.
As a syndication partner, you are essentially investing in a group of properties together with other people who want to make money from real estate.
Calculate your ROI before diving in
One of the most important things you can do as an investor is to calculate your return on investment (ROI). In short, this is the amount of money you’ve earned from an investment compared to what was invested in it.
To calculate ROI:
- Add up all income from that property, including rent and any other revenues (like depreciation or tax benefits)
- Subtract any expenses related to owning the property, such as maintenance costs and mortgage payments
- Divide the result of Step 2 by the amount of money you initially invested in your property.
For example, let’s say that you bought a rental property for $200,000, and over the course of 10 years, it generated $50,000 in rent and other sources of income. You invested another $20,000 into repairs and maintenance on this property during that time period.
Pay close attention to cash flow
As a real estate investor, you need to be able to pay your mortgage and other expenses. The higher your cash flow, the more money you have available for investing in new properties or expanding your portfolio.
Cash flow can also help determine whether it’s time to sell one of your properties. If it doesn’t produce enough positive cash flow after accounting for maintenance costs and vacancy periods (if any), it might not be worth keeping around as an investment property.
Take advantage of tax benefits and other savings
One of the most significant benefits of real estate investing is that it’s a tax shelter. As such, you can use your rental properties to shelter more income from taxes and save on your taxes.
According to IRS Tax Topic 502: Investment Income and Expenses, some types of investment income qualify for special tax treatment:
- Capital gains from the sale or exchange of main assets held for more than one year (long-term gains) are taxed at lower rates than ordinary income from wages or self-employment activities in which you materially participate.
- Rental income is generally treated as passive activity income unless you have substantial involvement in managing or administering the property. Any losses related to rental activities may not be deductible on Schedule E (“Profit or Loss From Business”).
Build a network of experts
Understanding how the local economy works and how much people are paying for homes in your area can help guide you toward making an intelligent investment decision.
When buying any property, it’s essential to understand what type of home or building is being purchased and why an investor would choose this property instead of another nearby one.
Having an experienced team on hand who can help determine whether or not a particular piece of real estate has potential can ensure success down the road when it comes time for resale–or even rental income if the owner chooses not to sell right away!
