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Latest posts by Gea Elika (see all)
- Buying vs. Renting – 13 Reasons on Whether You Should in NYC - March 23, 2018
- Due Diligence for NYC Real Estate Purchases - March 20, 2018
- 10 Things to Know about Buying Investment Properties in NYC - March 17, 2018
While the housing market has its peaks and valleys, as a long-term investing strategy it can often have a more stable and better return than investing in the stock market. For beginning investors, real estate can be a great strategy for planning for a lifetime of returns. However, there are some important things that beginners should know when deciding to make real estate a part of their investment strategy. These three considerations will help any first-time real estate investors get started on a path to success.
Long Term Commitment
Investing in real estate is not a get rich quick plan. It should be a long-term investment strategy. The best returns are made for those who are willing to put a dozen years or more into their real estate investment. Like with any other investment, including one made in the stock market, there can be ups and downs in the housing market. Statistically, however, the housing market has almost always rebounded when waited out. When there is a decline, we can usually see it coming over a period of 6 to 12 months. Unlike a stock market crash, which can happen rapidly, the housing market usually has a slow decline. Unlike the stock market, where a company can go out of business or where you can lose your entire investment, you will still own your property through a housing slump with little to no effect on your investment if you are willing to ride it out.
Image by Investment Zen / Flickr
Short Term Cash Flow and Long-Term Payout
Investing in rental property can have both short-term and long-term benefits. When you own a rental property, whether it is a multifamily townhouse, single family rental apartment, retail space, or mixed use commercial building, you are generating monthly income from the rental or lease payments that the tenants pay you. This is a great way to offset the monthly and yearly expenses that owning a rental unit can incur, such as taxes and repairs. Even more so, it’s an income stream, if you budget properly and bring in more than you are paying out.
As a long-term investment strategy, the money comes from the sale of the property. Over the years, you can almost always count on appreciation of the value of your property as long as you are doing your job well and making upgrades and maintaining the rental units correctly. As the market changes, you can wait for a peak and sell when the time is right. When you are ready to put your kids through college or are looking for retirement income, you can begin selling off your investment properties to use as income.
Any real estate investor should take the time to learn about financing, take classes on acquisition and negotiation, and study their marketplace. Consider forming an LLC for your investments versus personally owning the properties. This protects your personal assets in the event of an injury, accident, or damage on, or to, your investment property.
Take steps to secure the needed cash flow, including minding your credit score and debt to income ratio. You wouldn’t open a business if you didn’t have the cash flow to maintain inventory or pay salaries to employees. Consider investments to be your businesses. There will be repair expenses, utility expenses for empty units, and times when updates and general maintenance will be needed. Be prepared, and you’ll have much better success than you would if you were to go in blindly.
Don’t worry about waiting for the right time. When you are planning a long-term real estate investment strategy, you’ll weather the market changes. As long as you are educated and have the money and a good deal, you should go for it. Start with one property and build your empire from there!