” Landlords grow rich in their sleep”
Real estate has historically, and to certain extend remains the most attractive asset class to retail investors. Many reasons can explain that: investing on the market is associated with possessing some “extra” knowledge, often people prefer to invest in something they can physically touch, real estate is perceived as a low risk asset class. The current extra-ordinary financial environment – low interest rates, increased money supply, low inflation has lead an extraordinary amount of capital enter the real estate market.
Broadly speaking, there are two ways of investing in real estate: direct and indirect. Direct investments are those that you pick choose and manage yourself (i.e. you buy and rent a flat or a shop). Indirectly, you can participate in the real estate market by buying a share in a REIT or even having a a couple of shares or bonds in companies that are active in the sector. The most significant difference lies in the exposure you can take. When you choose to invest directly, you can easily leverage your exposure with a mortgage, where when choosing to do so indirectly it can be more difficult.
It is important to know that direct real estate investments are long term and capital intensive. Also, contrary to what many people think real estate prices does not always go up. They fluctuate more so with the record low interest rates. Having noted the above, when you have decided to invest in this asset class there few methods you can follow. Brian Tracy has got an approach that has worked for many. Investopedia has got a whole section about real estate you can check over here. Rich Dad Poor Dads author Robert Kysaky also has a book called guide to real estate investing.
The steps i have chosen to follow while investing in rental property are :
Think of the location you would like to buy. Why that location? What are the potential advantages and this advantages it has? What are the demographics? How about existing or future infrastructure? Good to consider are the average prices in the area and their trends.
Like with any investment ensure you are getting the best possible value out there – right price, right mortgage, right deposit.
Picture a future tenant. Design a property you would like to live in. Make sure that your product (property, furnishing, design) is the best on that market.
What is the special thing you would like to offer no one has?
Have a financial plan and calculate your margins and operating costs.
Important to have in mind that interest rates are in constant move. This can change your monthly installments. It is generally advised to repay your depth first.