How to invest in real estate without losing money

How to invest in real estate without losing money


Many successful people think about investing in real estate. But how to invest in real estate? After all, this is a great opportunity not only to save money during inflation, but also to significantly increase capital. In fact, there are many opportunities for successful commercial development in the new building and second home market. Traditionally, this area is considered one of the safest and most profitable ways to make money.

The article presents several options on how to properly invest in real estate, minimizing risks. This type of business allows the investor to receive passive income – in most cases, he does not need to take active steps to develop it, which allows him to direct his time and energy to another type of activity that requires more attention.

Investing in real estate is profitable while its action lasts. It is enough to make a one-time cash investment to receive dividends over a long period. But this is far from the only advantage. The topic is covered in more detail in the following sections.

Why investing in real estate will surely generate profits

It is important to understand that investing in real estate, like any other business, requires careful consideration of all the steps. Once you have decided to become an investor, you should study the market and use all possible options to build your own investment portfolio. An excellent option would be to invest in several types of buildings. There are also different strategies that allow you to carry out your chosen line of business as safely as possible.

The most common option is to buy apartments. Housing has always been and will be in demand among buyers, since it is one of the most important components of a quiet and comfortable life. You can profitably invest your capital in several stages: for example, the stage of building new apartments in a high-rise building or playing in the secondary market.

Before buying a house, apartment or other type of premises, you should take care of the safety of your money. Investing in real estate is a rather complex type of business that requires careful market research, knowledge of all possible risks and pitfalls. Therefore, you must be patient and read the literature that allows you to have a good understanding of the characteristics of the real estate market.

One of the most popular areas to acquire real estate is the purchase of commercial properties. The new owner resells the apartments or houses, another option is a long-term or short-term lease. A similar option is possible both in new buildings and with secondary market housing. More details about the purposes of investing in housing are described below.

Real Estate Investment Goals

Before investing in real estate, you need to think carefully to correctly answer the obvious question: what is the purpose of buying a home? Only by giving an accurate and balanced answer, you can start, because the choice of strategy, the object in which the money will be invested, the duration of the investment, as well as the risks, income and payback of the entire project depend of the answer.

You can read that only a few are successful in this type of business. According to statistics, only 20% of new investors know exactly what they want and set specific goals and objectives. This allows us to understand the reason for so many failures. That is why it is important to ensure that:
  1. You will definitely realize how serious your intentions are and how much money it will take to implement your plans.
  2. Investing in real estate is right for you. That is, the allocated assets are not the last in the budget; If necessary, it will be possible to adjust reserves without compromising quality of life.
  3. There is enough time to study the market, all its features and pitfalls, you are ready to put effort into understanding all the intricacies of the chosen type of business.
But the most important thing is to understand that several obstacles will arise along the way that will have to be overcome. Before starting your own business, it is important to weigh all the pros and cons, answer all the questions raised and only then take the first step. There are many new opportunities for people who have prepared carefully and decided to take risks.

Benefits of investing in real estate


Choosing business development is a rather difficult task, because there are advantages and disadvantages everywhere. But, when choosing an asset, many stop at the purchase of an apartment. The most obvious advantage is the possibility of getting a stable base, because in any case, you can keep the square meters for yourself and not pay more rent, having your own home. A win-win option. Other advantages:
  1. Investing in real estate allows you to save money during inflation. Apartments increase in price during an unstable economy, so the invested assets will remain.
  2. This is a great option to generate passive income. To do this, it is enough to rent an apartment and receive money without doing anything.
  3. Having chosen a suitable period on the market, the premises can be sold profitably and receive additional income.
For entrepreneurs who decide to obtain another citizenship, investing in real estate opens up great opportunities. Among the countries that offer permanent residence for investing in the economy, you can find many and many other interesting options.

Of course, in this case we are talking about quite large amounts, measured in hundreds of thousands of dollars. Because to carry out the transaction, it will be necessary to cooperate with very serious state-owned companies. And so without competent legal assistance it is essential.

Where to start?

Regardless of experience and amount of capital, an investor must start with training. The most important thing is to face the risks. You should keep in mind that operating in the real estate market involves many risks, so you should not start without a sufficient level of preparation. First of all, it is important to understand the following questions:
  1. What types of real estate investment exist?
  2. When can I expect to receive the first income?
  3. Types of objects and subtleties of the correct choice.
  4. Legal means to finance the real estate market.
  5. How to avoid or minimize risks?
Today, real estate investments can be made thanks to many government programs. Among the most common: investing your own money, using specific bonds that allow you to make a purchase, deposits to buy apartments in new buildings. In addition, there are many other options that you can get acquainted with by studying the market independently. Below are the most interesting sights.

Types of real estate investments

Starting to learn how to quickly start investing in real estate , newcomers to the market face the first difficulties. Because it turns out that everything is much more complicated than buying an apartment and starting to rent it to everyone. At the initial stage, you need to understand the basics of capital investments, which are presented below:
  1. A common option is to inject money into commercial premises or apartments. This last option is the most convenient for novice investors, since it does not require large expenses. Buying non-residential commercial property, including hotels, warehouses, offices, and other places, requires enough expertise and much more cash injections than the first option.
  2. It is equally important to make investments by correctly choosing the stage of preparation of the object. The transaction can be concluded for the purchase of a fully finished apartment (office, house, etc.) or at the time of start or construction. By signing a contract at the beginning of construction, you can earn a lot of income in the future, but the risks of projects under construction are a riskier operation and therefore require careful weighing and working out the details.
The easiest option is to buy a finished apartment on the secondary market. Without experience on how to invest in real estate, dealing with an object that is under construction is quite difficult.

If there is a desire to invest money in the facility even at the stage of laying the foundation pit, you should be prepared for the following risks: construction may freeze for various reasons, various problems arise associated with the transfer of the facility to operation , many government agencies do not give permission to connect municipal communication systems.

A lot of money is spinning in the market for new buildings and secondary homes. We are talking not only about direct investments in the object itself, but also about additional costs associated with the need to maintain it.

Investment terms

In addition to choosing a property, it is important to correctly calculate the terms in which the investments will be invested and the payback period. This is what will be discussed below. The question of how to invest profitably and profitably in real estate is quite complicated, since there are many answers, but none of them will give an exact plan. Each case is individual and requires a special approach to solving problems. Because if you decide to use real estate as a means to generate income, you should be prepared to wait. The average property typically pays for itself within 7 to 12 years of purchase. In this case, several options are possible:
  1. The standard scenario is the purchase of an apartment on the secondary market, which will be used exclusively for rental. At a price of $30,000 and a rent of $200, it would take 12 years and 6 months to pay it off. Of course, the figure is very approximate, because the rent can change, and you also need to remember the need for periodic repairs and tax payments.
  2. An alternative scenario is the purchase of an apartment in a new house. Add $30,000 for repairs to the average cost of $120,000. The rent will be, for example, $1300, that is, you can return the object in 10 years and then make a profit. But you should be prepared for unexpected expenses, as mentioned above.

Additional options

  1. You can invest in commercial real estate. In this case, the situation is very similar. The average payback period for an object will be about 10 years, but it all depends on the initial amount, the rent and a series of other related factors, which are very numerous. Commercial properties are not as stable compared to apartments. The cost can be very high or fall. The same situation with the demand for rent.
  2. You can earn faster dividends by taking the opportunity not to lease the item, but to sell it at a better price. In this case, we are talking about speculative investments, when, for example, an apartment is bought at a bargain price and then sold at a higher price. One of the ways to invest in this case is to buy an apartment at the construction stage with subsequent resale when the object is fully commissioned. Of course, it will be necessary to make repairs and wait a few years before delivery. But the recovery can be 10% to 50%. It is impossible to say exactly due to several factors: region, demand, macroeconomics, etc.

Schiller's formula

Robert Shiller's formula will help you learn how to choose the right development vector in the real estate market. With the help of it, he can evaluate the prospects of the object and decide whether to make an investment.

The methodology was developed by the Nobel Prize in Economics, it is extremely simple and understandable even for beginners who are just starting out in this business area. When making a purchase decision, you need to calculate the ratio of the value of the object to the amount of rent for a full year of residence. Of course, you will have to study a lot of additional information to get reliable numbers, but this will prevent a number of mistakes and loss of money, so the effort and time are fully justified.

An approximate calculation using Schiller's formula is as follows:

The cost of the object is $25,000. With a monthly income of $150, the annual income will be $1,800. That is, the ratio will be 13.9, which means that the number is in the range of an appropriate real estate appraisal, which, according to the formula, is 10 to 15. If the final figure is less than 10, then the property is undervalued, making it extremely attractive for investment. If the figure is greater than 15, the investment is likely not profitable, since there is an overvaluation.

Of course, the calculation does not take into account many important factors: demand, competition, inflation, etc. But for a novice investor, it is quite suitable as a basic one. In the future, he will need to expand his arsenal, otherwise he will not be able to invest professionally in real estate.

When is the best time to invest?


This is an extremely difficult question, which is almost impossible to answer, since there is no single answer. It has been noticed that in summer, during the holidays, and in winter, during the Christmas holidays, activity drops. This allows you to buy an item cheaper. On the other hand, additional factors will affect the cost. For example, the state of the economy and the political situation in the country, demand in a particular region, and others.

That is why it is impossible to answer how to invest in real estate. Statistics show that prices drop from November to March. But even during the period of highest prices, you can find an object at an attractive price. Especially when it comes to the need for an urgent sale. This is why you need to monitor the market constantly.

Real Estate Investment Strategies

When deciding to invest in real estate, you should carefully consider the strategy. There are a large number of options for different types of objects, so there will be plenty to choose from. Below are several options for those who want to try their luck in the secondary market by purchasing an object that is already ready for delivery or resale:

  1. The most reasonable option for beginners is to buy an apartment in residential conditions for subsequent rental without additional repair costs.
  2. Buy an apartment that needs renovations. Because it allows, after putting it in order, to rent the home, increasing the rental price, or to resell it. In the second case, the price may be higher by 50%. Of course, you must be able to correctly evaluate the upcoming job; Otherwise, once the repair is completed, it may go "in the red" even after resale.
  3. With a high demand for rental apartments, many players in the real estate market buy a large apartment to divide it into several studio apartments. So these apartments are rented at a large profit. The reverse option is the purchase of several adjacent small apartments to join them into one large apartment to rent at a higher price or sell.
It is important to remember that when buying an object in which additional investments are needed, everything must be carefully calculated. Of course, the desire to earn a large income is strong, but it should not outweigh common sense. Repair work is not only the need to spend, but also the time during which the situation on the market can change.

Primary market and commercial properties

The discussed options on how to invest in real estate using the example of apartments are completely viable. And especially in the case of commercial facilities or new buildings. Additionally, you may consider transferring a commercial facility to a residential fund. This will significantly increase your cost.

Having gained experience and learned how to make the right decision in the primary market, you can successfully make money. And make contributions regardless of the construction stage. But there is a golden rule: the sooner the investment is made, the more dividends it will bring to its owner.

When investing in square meters of an object under construction, you should prepare a leasing or resale plan in advance. Because very often investors buy apartments in new buildings even at the time of laying the foundation. And then they resell them at a later date more expensively and profitably. After all, this allows you to receive income sooner and not incur additional costs. In a good scenario, the total net income can be at least 35% of the amount invested.

Pros and cons of investing in real estate

Telling how to invest in real estate is almost impossible. Any type of business that requires investment has a series of its own characteristics, advantages and disadvantages. The main advantage of investing in square meters is the possibility of earning income for many years or even decades. For example, renting apartments, while the rent is received. To increase income, it is enough to improve facilities and increase the cost of living. If we take a long-term perspective, the price of real estate increases over time. The downside is the long payback period and net income.

We must not forget about low liquidity. If the item must be sold quickly, problems may arise. To speed up the process, you will have to significantly reduce the price, which will lead to financial losses. And the most important thing is the need for constant maintenance costs.

What to read before buying a property

When deciding to invest in real estate, you must prepare carefully. For this, it is worth reading the specialized literature of professional economists. Also, there are books written by people who have made a fortune in this particular business. They have gone through all the stages and are ready to share their experience. All that remains is to read. The first step is to buy Robert Kiyosaki's book "Investing in Real Estate". But no less entertaining and useful book is Real Estate Investing for Dummies by Eric Tyson. From national literature, it is worth familiarizing yourself with the book "Investing in real estate." How to make money without initial capital with other people's money" Alexey Durnev.
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