Investing in real estate is one of the best ways to generate regular monthly passive income and create wealth. However, it takes an enlightened investor to succeed in this market. You require skills, education, and experience to avoid pitfalls and progressively build your wealth. Here are some factors to consider when investing in real estate in 2023 and beyond.
Financing and Determining the Right Investment Property for Your Goals
First and foremost, determine how much you can afford. Real estate is a long-term investment that requires capital. You pay a higher down payment for investment properties than a home. Most lenders will ask for a 1-10% down payment for a home and up to 20% for an investment property. Furthermore, not all lenders offer loans on investment properties. So, be sure to have your real estate broker connect you with the right mortgage professional.
Finding the right investment property for your long-term goals is the next step. Determine the market you can afford to invest in first. And then find the right property that aligns with your goals. Short-term real estate investing is a hot investment right now, but many areas are oversaturated, and homes are sitting on sites like Airbnb and VRBO unrented. Long-term investment properties often bring a lower passive income yet are great wealth builders and consistent income.
It’s important to work with a broker who is an expert in real estate investing and is very familiar with the market and what will be most profitable in that area.
Weigh Your Financial Risks and Tolerances
The main benefit of real estate is the long-term return. Property appreciation makes real estate investment one of the best ways to create wealth. Rental properties also generate cash flows, which makes the investment even more viable.
However, investment is not always about making profits. You will encounter operating expenses, such as utilities, property management fees, repair and maintenance, and property taxes along the way. If you are investing in a cash-flowing property, you will deduct the operating expenses from your rental income. In some markets, the rental income does not cover the mortgage, taxes, and other operating expenses. In addition, you may have to wait for months before the cash starts to flow in. Before venturing into real estate, ask yourself the following questions?
- Are you ready to wait six months or more for rental cash flow?
- Can you meet some of the operating expenses before you break even?
- Does your long-term rental pencil out?
- Do you want a cash-flowing investment or an appreciating one?
The point here is to go for what you can afford in a market that matches your short and long-term goals. Rental properties make the best investment for investors seeking regular incomes, while appreciating properties make the best investment option for those who want to create wealth. However, the rental property will also increase in value with time.
Seek Professional Help
Matching your short and long-term goals with the market can sometimes be overwhelming. However, you do not have to figure out everything alone. Local investment real estate experts can help you locate properties that match your financial goals and align with your risk tolerance. They can also connect you with any additional resources needed to get your investment property running smoothly.
Another thing they can help you with is truly identifying the costs, risks, and rewards of certain properties. You’ll want to create a spreadsheet of potential income and expenses. (Don’t forget about management fees if you plan to have someone manage the rental.) In many markets, property managers charge anywhere from 10-15%, and short-term property managers charge from 10-35% for managing the properties. A spreadsheet will help you to see the bottom line and if a certain property pencil out for your goals.
Flipping Vs. Turnkey Rental Investments
You can choose to invest in a cheap property, flip it and sell it at a profit or a turnkey property. Flipping can earn you higher profits than investing in turnkeys. However, you need significant experience to succeed as a flipper. Before you consider becoming a flipper in 2023, consider the following.
- Do you have the ability or desire to make upgrades?
- Can you afford to hire a contractor or handyman to help with upgrades or repairs?
If the answer to the questions is negative and you have little or no experience in real estate investment, go for a turnkey. However, you should also be ready to cater for unknown repairs even when you go for turnkeys.
Bottom Line for Real Estate Investing in 2023
If you’re reading this article, you’re on the right track toward building wealth! When you’re ready to take the next steps and talk about getting started on your journey to becoming a real estate investor, reach out. I’ve helped many people on this path find great success and wealth with vacation and rental properties all over!
Whether you’re located in Washington State and looking to locate a home for snowbirds to rent, looking to invest in your long-term retirement home, or are ready to take the plunge and purchase a condo to rent in Mexico, Greece, or across the world, I’m happy to help you along your path and connect you with a team of experts to support you on your journey.