How to figure out if you’re ready to take the plunge, and what you should do first.<\/p>\n
Your best friend flips houses, your uncle has a growing portfolio of commercial properties and your parents are renting out their old home to a family who just moved to town. Are you the only one\u00a0 not\u00a0 making money from real estate?<\/p>\n
Not quite, but you could be missing out on an opportunity at the perfect moment.<\/p>\n
It\u2019s a unique time for real estate investment as interest rates remain near historic lows following a housing crisis that began at the close of 2007 and a subsequent recession that wreaked havoc on residential and commercial real estate for the duration of the economic downturn. With real estate prices throughout the nation largely back at their pre-recession levels, investors have been bringing inventory left vacant in 2008 or 2009 back to the market and finding occupants.<\/p>\n
\u201cAreas that were hit by foreclosures or blighted areas, people are now coming back into and reinvesting,\u201d says Charles Tassell, chief operating officer of the National Real Estate Investors Association.<\/p>\n
Real estate investing site BiggerPockets.com partnered with turnkey real estate investment company Memphis Invest to produce a National Survey of Residential Real Estate Investors in 2012, concluding there are about 28.1 million real estate investors in the country spending a total of $9.2 billion on real estate renovations. Thanks to those renovations, consumers are now seeing move-in ready homes and rehabbed apartment buildings \u2013 along with rapidly rising home sale prices and rents.<\/p>\n
What’s more, the Bankrate Financial Security Index Survey released last week revealed 54 million Americans consider real estate to be the preferred cash investment for funds not needed for more than 10 years.<\/p>\n
If you\u2019re one of the tens of millions who think real estate is a better place for your money than stocks or other investments, it might be time to get off the fence and get started. Here are five things you can do to make sure you\u2019re ready to invest, plus some tips on how to get started the right way.<\/p>\n
Educate yourself first.<\/strong> Take your time.<\/strong> Make connections.<\/strong> Consider the options.<\/strong> Put your eggs in other baskets.<\/strong>
\nIf you\u2019re unfamiliar with the nuances of real estate transactions, not to mention the real estate market you want to invest in, become an expert before you put up any capital.
\nDepending on the type of investment you intend to make \u2013 commercial or residential property, house flipping or owning and managing a property with tenants or even short-term rentals \u2013 get a full understanding of what\u2019s involved and whether you can handle it.
\n\u201cIt\u2019s nice what they show on television, but there\u2019s a whole lot of details and paperwork that come along with that. And that\u2019s where the mentoring and partnering come into play \u2013 people can really help you out,\u201d Tassell says.<\/p>\n
\nReal estate is a major investment, so don\u2019t make any decisions until you feel confident in the deal.
\nIn January, Wells Fargo released a Wealth Planning Update, \u201cInvesting in Real Estate in Today\u2019s Market,\u201d which noted that low interest rates in previous years have been essential to attracting investors to real estate.
\nSeven months later, one of the authors of the report, Scott Bennett, real estate advisory specialist for Wells Fargo Real Estate Asset Management, says the expectation that interest rates would rise this year has changed, as the Federal Reserve does not foresee increasing rates in the immediate future. That gives investors more time to carefully consider their decisions.
\n\u201cIf anything, it\u2019s given people the opportunity to look a little more closely at the opportunity they\u2019re considering because there\u2019s not this deadline of interest rates rising,\u201d Bennett says. \u201cWe\u2019ll probably stay in the low interest rate environment for the near term anyway.\u201d<\/p>\n
\nMaking the right friends can make a huge difference when you\u2019re starting a new business venture, which is why Tassell says connecting with a local group or association can help you get past square one with real estate investing. Nearby groups can usually be found through a search online, and they may have member dues as well as non-member events.
\nTassell has one warning, though: He advises against one-time events by house flipping or investing \u201cgurus\u201d who offer tricks of the trade but no local knowledge or continuous help.
\n\u201cThose tend to leave people with empty wallets and information they don\u2019t know how to implement, whereas a group provides both education that takes time to answer the questions you actually have, is applicable locally, and typically you can build mentoring and networking partnerships \u2013 and those are essential when you\u2019re going into real estate,\u201d Tassell says.
\nBennett also recommends working with a qualified real estate advisor. \u201cIt gives you an opportunity to invest wisely, gives you an opportunity to invest alongside with a professional group, and it gives you an opportunity to learn the business alongside a professional team while you\u2019re investing at the same time,\u201d he says.<\/p>\n
\nDetermine what kind of property ownership will be best for your money and where you should invest.
\nWhile investing in property in your local market may seem like the go-to option because you\u2019re familiar with the area, selecting an outside market may be better for your bottom line.
\nPeter Abualzolof, co-founder and CEO of real estate investment data analysis service Mashvisor, notes an investor from New York City who may not have the capital to invest in high-priced New York properties could focus on a smaller, less expensive market. This could mean going into suburbs or noncoastal markets that are flourishing, such as Denver or Austin, Texas, where property is a bit less expensive but is seeing consistent, strong gains. This only works, of course, if you study the market and know its nuances first.
\n\u201c[Investors] can potentially find a property for a lower cost at a higher return or potentially purchase multiple properties for the same budget with a higher return,\u201d Abualzolof says.<\/p>\n
\nBoth before and during the investment process, keep an eye on costs and your investments elsewhere. The last thing you want to do is put everything in you have into a single real estate deal.
\nBennett often works with Wells Fargo clients who have larger portfolios, with real estate serving as a portion of their overall investments. You should have varied investments outside of real estate to help offset declines in certain asset classes \u2013 if real estate takes a dive, for instance.
\n\u201cWe look at [real estate investment] as an opportunity to diversify a portfolio,\u201d Bennett says.
\nAdditionally, while short-term real estate investments like house flips might seem tempting, holding onto real estate for longer periods and riding out hiccups in the market tends to give you better security in your investment.<\/p>\n