Is investing in real estate a good idea in 2022? This quintessential question has probably been playing on your mind recently. You probably know other people who have invested, but it can be pretty scary to jump the gun yourself. Should you invest? When should you start?
Investing in real estate is a good idea. Real estate investments have historically provided reliable returns for investors. Long-term real estate investments can create passive income for owners, and short-term investments (like house-flipping) can be a good way of earning money quickly.
Obviously, real estate investing isn’t for everyone. Past performance is not a guarantee of future performance. However, with new and exciting ways to get involved, real estate investing is certainly worth exploring. Investment opportunities include buying, selling, or renting properties or alternatively, investing in real estate stocks or REITS.
Remember, investing can earn you money in the long run, but it is a commitment. When should you start and why should you invest? Let’s discuss some more details about why it’s a good idea to get into real estate.
Is Investing In Real Estate A Good Idea?
From the above, you know that investing is a good idea (in our humble opinion).
You’d be hard-pressed to find a single successful entrepreneur who doesn’t also have a property portfolio hidden away.
But Why Should You Invest In Real Estate?
By placing your money in a reliable cash generating asset, you are putting your money to work. Make your money, make money.
However, the issue many have with investing in real estate is that it does not give you much cash initially. There are few get rich quick schemes in real estate.
You can buy a property and rent it out, but this will not necessarily offer returns up-front.
If you took out a loan to buy the property, the tenancy rent payments may cover the mortgage. There may even be some extra income left over. However, it’s unlikely to be substantial. The rewards will truly be reaped when selling on the property. Depending on the property value, you could be left with hundreds of thousands in profit – all from an initial 10% deposit!
Real estate investing makes optimal use of leverage. This is the practice of utilising borrowed money to maximise the potential returns of an investment.
By having a mortgage, you have access to investment assets that would otherwise be unattainable. The potential returns are far higher than you would manage with your deposit alone.
An expansion of this is The BRRRR Method Of Real Estate Investing.
3. Learn To Invest/Hustle
Real estate investing can be an accessible first venture into the world of investing.
Most people will be employees their whole lives.
Real estate is a window out of that life.
Become the landlord – el jefe – the boss.
You will learn to run your own business and manage your finances.
You’re very likely to soon develop a taste for investing. This is no bad thing!
Things To Think About Before Investing In Real Estate?
Short-Term Vs Long-Term Real Estate Investment
As with all investing, real estate investing can be short-term or long-term.
In order to make the most of your real estate investments, you need to decide which strategy is best for you.
The best example of short-term investing is house flipping. This is when someone buys a house, renovates and updates it, then sells it for more than they bought it for. This is the fastest way to make a profit off of a property.
However, many famous investors teach that you should try to have long-term investments, not just short-term investments. This way you have multiple nest eggs growing simultaneously, ready to hatch at different opportune moments.
A property portfolio is a great example of this. You can have a selection of properties which are set to be paid off at different time points. Once the mortgage is paid off, the rent payments are subsequently all profit!
This leads us perfectly into the next topic… passive income.
Earning Passive Income Through Real Estate Investing
How much work are you prepared to put into your real estate investments?
This is something to think carefully about.
Investing in real estate can be a good idea if you’re building passive income streams.
After all, the best way to become rich is by having multiple sources of income. You do not become rich by selling your time for money.
Real estate is an easily understandable and accessible form of passive income. For those starting small, purchasing a single rental property can be a great way to generate a consistent monthly income.
Is this really passive income though?
Don’t be fooled.
Renting out a property comes with active hands on work. You’re responsible for maintanence issues, paying bills and filing tax returns.
There is a passive element however. Over time, properties grow in value. You can sell your property for a lot more money than you originally paid. This uplift in value is relatively passive.
Are there more passive forms of real estate investment?
Yes. Consider investing in a REIT or “Real Estate Investment Trust”.
You can essentially buy “shares” of a REIT, then sit back and relax. No work needed.
You can read about them here.
How To Invest In Real Estate?
Let’s consider real estate in it’s simplest form… buying a property to rent or flip.
First off, you need to make sure that your finances allow for investing.
If you want to buy a home in the $200,000 – $700,000 range, then you need to be qualified for a loan of that size.
First, you will need to get pre-approved for a loan.
When getting pre-approved, you need to give the bank representative your monthly income, what your mortgage or rent looks like currently, and more. They will also check your credit score (with your permission).
There can be a lot of questions about what a credit score is and why banks check it, so here are some of the details:
- A credit score is built over time. Paying bills or using your credit card responsibly are both excellent ways to build your score.
- Basically, as you pay for things with a credit card you are using the bank’s money to pay, then you pay them back.
- If you wait too long to pay off the card, then you will have to pay interest on the money you now owe the bank. This damages your credit score – you’re less reliable!
So, the best way to grow your credit score is to use your card and pay it off as quickly as possible. Your credit score tells the bank how trustworthy you are with money, the higher the score the better.
Read this guide for more details: How To Build Credit In 5 Simple Steps
After going through the steps of getting pre-approved, you will need to put in offers at properties you want. Eventually, you will buy a property, and then you can decide what you want to do with it. You can renovate and sell it, you can rent it out, live in it, and more.
So, Is Investing In Real Estate A Good Idea?
I’ll let you be the judge.
The main message is… educated investing is good.
It gives the average man a fighting chance of retiring before their 70’s.
However, note the word educated.
Be sure to do your due diligence before taking the plunge.
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