Real Estate Investment Firm
When you think of real estate investing, the first thing that probably comes to mind is your home. Of course, real estate investors have many other choices when it comes to choosing investments, and they’re not all physical properties.
Real estate has become a popular investment tool over the last 50 years or so. Here’s a look at some of the leading choices for individual investors, along with the reasons to invest.
If you invest in rental properties, you become a landlord– so you need to consider if you’ll be comfortable in that role. As the landlord, you’ll be responsible for things like paying the mortgage, property taxes, and insurance, taking care of the property, finding renters, and handling any issues.
Unless you employ a property manager to handle the details, being a landlord is a hands-on investment. Depending on your situation, managing the property and the tenants can be a 24/7 job– and one that’s not always pleasant. If you choose your properties and tenants carefully, however, you can lower the risk of having significant problems.
One way landlords generate income is by collecting rent. How much rent you can charge depends on where the rental is located. Still, it can be difficult to determine the best rent because if you charge too much you’ll chase renters away, and if you charge too little you’ll leave money on the table. A common strategy is to charge enough rent to cover expenses until the mortgage has been paid, at which time most of the rent becomes profit.
The other primary way that landlords make money is through appreciation. If your property appreciates in value, you might be able to sell it at a profit (when the time comes) or borrow against the equity to make your next investment. While real estate does have a tendency to appreciate, there are no guarantees.
Like the day traders who are leagues away from buy-and-hold investors, real estate flippers are a totally different breed from buy-and-rent landlords. Flippers buy properties with the intention of holding them for a short period– often no more than three to four months– and quickly selling them for a profit.
The are two primary strategies to flipping a property:
- Repair and update: With this strategy, you buy a property that you think will increase in value with certain repairs and updates. Ideally, you finish the work as quickly as possible and then sell at a price that exceeds your overall investment (including the renovations).
- Hold and resell: This type of flipping works differently. Rather than buying a property and fixing it up, you purchase in a rapidly rising market, hold for a few months, and then sell at a profit.
With either kind of flipping, you risk that you won’t be able to unload the property at a price that will turn a profit. This can present a challenge since flippers don’t usually keep enough ready cash to pay mortgages on properties for the long term. Still, flipping can be a lucrative way to invest in real estate if it’s done the right way.
Why Invest in Real Estate?
Real estate can improve the risk-and-return profile of an investor’s portfolio, offering competitive risk-adjusted returns. In general, the real estate market is one of low volatility, especially compared to equities and bonds.
Real estate is also appealing when compared with more-traditional sources of income return. This asset class usually trades at a yield premium to U.S. Treasuries and is especially attractive in an environment where Treasury rates are low.
The Bottom Line
Real estate can be a sound investment, and one that has the potential to provide a steady income and increase wealth. Still, one drawback of investing in real estate is illiquidity: the relative difficulty in converting an asset into cash and cash into an asset.
Unlike a stock or bond transaction, which can be completed in seconds, a real estate transaction can take months to close. Even with the assistance of a broker, simply finding the right counterparty can be a few weeks of work. Obviously, REITs and real estate mutual funds offer better liquidity and market pricing. But they come at the price of higher volatility and reduced diversification benefits, as they have a much higher correlation to the overall stock market than direct real estate investments.
As with any investment, keep your expectations realistic, and also be sure to do your homework and research before making any decisions.
With Mission First Capital, you can start your investment journey alongside other military members and veterans! If you have questions or would like to talk about potential partnerships or investment opportunities, don’t hesitate to reach out. Give us a call at +1 (844) 632-3863 or visit our website MissionFirstCapital.com to learn more and let’s invest today!