5 Things Beginner Real Estate Investors Should Have in Mind
There are certainly some people out there wanting to start investing in real estate and the first important asset they need to acquire his education. If we add up the current uncertain framework generated by the COVID-19 pandemic, then beginners will need to take into account some additional rules and because of that. I am Ofir Eyal Bar, a real estate investor with stakes in Western European countries and South Africa, and I would like to provide to you 5 important things that will help navigate the near future as a beginner real estate investor.
Starting small and conservative
Each time I start to do something, the enthusiasm and optimism are very high. It’s something natural, but in order to avoid most of the mistakes beginners make, one should get through that phase as fast as possible. Remember that investing in real estate is a serious business and without a rules-based plan, you can end up losing money. Since circumstances are not very favorable, my advice for anyone planning to start investing in real estate is DON’T RUSH. Learn diligently the mechanics of real estate, study particular areas where you want to invest, but don’t put money to work, yet. Economic activity will slow in the upcoming months and as a result, valuation in the real estate field will become more attractive. By being patient right now, you will be able to buy at low levels and increase your profit potential later on.
Simply starting to buy properties and manage them without prior experience could be an overwhelming task. If you don’t want to have that approach, there is a passive way to invest in real estate and that’s via REITs. Real Estate Investment Trusts (or REITs) are public-listed companies that invest in real estate around the world. You can buy shares on the stock market and each time the company pays dividends, you will get a share.
One of the great advantages of REITs has to do with a greater degree of diversification. These companies own properties in various countries and different economic sectors. Your risk will not be contained in a single place and that will limit the downside, in case the market performance will slow.
However, choosing the right REITs to invest could be a challenge right now. Stocks continue to be under pressure and you will need to find companies that have built a portfolio of real estate assets performing well, even during times of crisis.
Using online real estate investing platforms
If you are at the beginning, then acknowledge that you will need a lot of help to do things properly. It’s very unlikely a real estate investor will work as a mentor, while neglecting his work, so you must find other helpful tools. Online real estate investing platforms like LendingClub or Prosper connect real estate developers to investors who want to finance different projects.
Investors can receive monthly or quarterly distributions, but at the same time, they will have to take risks and pay a fee to the platform. As compared to REITs, in this case, we’re talking about an liquid investment. If you can sell stock in a second on the public market, you won’t be able to do the same with an online platform. At the same time, some of them accept only accredited investors, which means you should have earned more than $200,000 in each of the last two years or have a net worth of $1 million or higher.
Rental properties investing
In case you’ve found an attractive investment opportunity, you should buy-to-rent, given the current economic framework. The probability of you being able to sell it at a higher price in the short-term is very low, so make sure that you will be able to rent it. Finding reliable people who can meet their obligations and pay the rent is another task you need to handle. Keep into that the rising unemployment and with no incomes, a lot of people will need to cut their expenses. Buy-to-rent and choose your customers wisely, to avoid payment delays.
During the next few months, a lot of underpriced homes will be available for sale. House flipping means buying one or more and invest in renovation, to resell later for a profit. Since home prices are expected to drop, it will get easier to negotiate a lower price when you buy and then wait until the market rebounds to bank a higher profit margin. This is another speculative investment, though, and you will need to choose properties very wisely. It’s unlikely we’ll have a global coordinated economic rebound. Some countries will recover fast and some won’t. You are responsible for conducting in-depth research and finding a potential for growth.