Real estate investments have been quite popular in recent times. The main reason behind this trend is that land has a growing appreciation. Moreover, properties can bring a satisfying amount of income when managed the right way.
Among the myriad benefits, owning real estate allows you to diversify your income streams. Still, you must make every decision carefully and do your research before any deal. If you’re looking for a fresh start in the business, here are some key do’s and don’ts from professional accredited investors.
Consider Diversifying Your Business
One of the main benefits of owning real estate is the opportunity to diversify your assets. In other words, holding a wide range of properties will provide cash flows from various sources. Spreading your investments is a smart way to minimize the risk of losing big money. Ultimately, there won’t be that much of an impact if one of your streams dry up. Besides, the real estate market doesn’t correlate directly with the stock market, so your properties will steadily increase in value.
Bear in mind that owning too many real estate assets/real estate investments may not diversify your net worth effectively. After all, the idea is to use only a tiny chunk of your finances. Another tip is to consider your location as part of your strategy. As you may know, physical location is the main driver behind every property’s value. It’s a good idea to keep up with the local market, especially if your home is in the same community. Of course, doing the exact opposite and being a long-distance landlord isn’t a good idea either. The best you can do is consider the risks and try to find a balance.
Consider An Investment Property
If you’re already holding enough cash, real estate investing can be a clever way to put those funds to work. Typically, such an investment requires lots of cash up front, especially if you’re an accredited investor.
Also, you need to save some money for ordinary expenses, such as unexpected repairs, post-due tenants, etc. Improper management of your capital can quickly lead to financial problems. While real estate investment is highly illiquid, you cannot sell a room in your building. That’s why you should try and think ahead of time.
Consult with Experts in The Field
Undoubtedly, accredited investors can have a pretty decent amount of annual income. Still, you have first to learn the ropes to make a good profit. If you’re a beginner, it’s a good idea to talk to somebody who’s already in the business. You can permanently relieve some of the duties of being a landlord by investing in REITs. Still, you’ll find it surprising how engaging it can be to manage properties.
Perhaps, handling all the properties can become quite arduous. In such cases, what you can do is hire a property manager. But keep in mind that hiring a specialist may impact your cash flows. Also, don’t forget to ensure you comply with all local and federal laws. Otherwise, you may put your assets and yourself in financial and legal risks that no one wants to have.
Don’t Invest in One Asset Class
As mentioned previously, real estate investment is a great way to diversify accredited investors’ portfolio. However, beginners quickly make the mistake of over concentrating on one asset class. This factor can quickly become a stumbling block that may put your net worth at risk. It’s all because you can maintain your property, but you can’t control the local and national markets.
Of course, many different factors may affect your assets. Still, you should carefully consider the impact of any changes in interest rates and increase in property taxes. Also, don’t forget to keep an eye on any changes in the public services offered in your community.
Don’t Rush to Assumptions
Usually, all non-accredited or accredited investors must make some cash flow projections to ensure they’re making a good investment. In this regard, it’s safe to say that rushing won’t work here. Instead, you should thoroughly research your options and obtain accurate income and expense figures. That way, you’ll get an objective overview of the risks and potential prospect of buying a property.
A typical estimate would include the cost of the asset, projected vacancy and discount rates and taxes. The entire modelling process is critical to minimize any possible risk of failure. Since real estate is illiquid, it can come out to be “underwater”, and you can lose more than your investment. For this reason, you should consider scenario analysis as part of your plan. Depending on your goals, buying a particular property may or may not be the best move. That’s why cash flow modelling will help you make a decision.
Final Thoughts
All in all, real estate investing opts for a careful approach to fulfil the full passive income potential. In this regard, it’s crucial to understand the importance of being an accredited investor. You must objectively assess all your options and be realistic about your expectations.
Before you invest in real estate, you must ensure the potential cash flow justifies the risk and opportunity cost. That’s why you shouldn’t make any excuses regarding your net worth. If you’re a beginner in the field, professional real estate investment company such as Real Vantage provides professional assistance to accredited investors.
