Real Estate Investing Guide for New Investors
By Joshua Kennon
For many people, real estate is the easiest to understand investment because it is simple, straight-forward and involves a fair exchange between a property owner (the landlord) and the property user (the renter). As long as the hot water keeps flowing and the rent arrives on time, everyone is happy and benefits. Investing in real estate is much more complex than this, though, because there are several different types of real estate investments including residential, commercial, and industrial, as well as real estate that trades on stock exchanges, which are called REITs.
1 Real Estate Investing 101 for Beginners
When you invest in real estate, your goal is to put money to work today and make it grow so you have more money in the future. You have to make enough profit, or "return", to cover the risk you take, taxes you pay, and the costs of owning the real estate investment such as utilities and insurance. This overview explains the basics of real estate investing for beginners to help you learn what to expect and how investors make money from their real estate properties.
2 The 8 Different Types of Real Estate Investments
There are eight different types of real estate investments that new investors need to understand: Commercial real estate, residential real estate, industrial real estate, mixed-use real estate, retail real estate, REITs, mortgage lending, and sale/leaseback transactions. Each has its own benefits and drawbacks.
This basic guide gives you a brief explanation so you won't be intimidated or overwhelmed when you are examining potential investments and see the terms used.
3 Where Is the Best Place to Invest My Down Payment Money?
If you are considering buying real estate, whether it is a primary residence for your family or an investment property, you need to know how to keep your downpayment money safe and easily accessible.
4 Which Is Better - Real Estate or Stocks?
As a new investor, do you ever wonder which is better: stocks or real estate? Both have certain advantages and drawbacks but the answer may depend just as much on your personality and tastes as it does your portfolio and situation.
5. What are REITs? Are They Better Than Buying Property Directly?
One of the most popular ways to own real estate is through a special type of investment known as a REIT, which is short for real estate investment trust. Real estate investment trusts come in nearly-limitless "flavors" - for example, some invest only in commercial real estate, and others only in apartment complexes. You can trade REITs just like stocks through a brokerage account and the dividends are taxed differently than dividends from stocks.
6. Should You Pay Off the Mortgage on Your Real Estate Early?
Some financial advisers will tell you to send extra payments to your creditor to lower your real estate debt. Others will tell you to keep more money on hand instead, so you can stockpile a decently sized emergency fund.
7 Using LLCs to Own Your Real Estate Investments for Risk Management
You should almost never, under any condition, own a real estate investment directly in your own name! Most of the time, serious real estate investors own properties through something known as a limited liability company, or LLC. These special types of companies can protect your personal assets from lawsuits and other dangers. In fact, most wealthy investors own their home through an LLC as a risk management practice. As a potential new real estate investor, it is imperative that you understand how LLCs work and why you may want to use them to hold your rental properties or other real estate investments.
8. The Great Real Estate Myth
One of the biggest investments someone will make in their life is their primary residence. Unfortunately, few new investors/homeowners realize that once you factor in the cost of insurance, maintenance, net interest costs on the mortgage and other expenses, your real rate of return after inflation on a home is roughly 0%. That doesn't have to be the case, but you should go into your first major real estate investment with your eyes wide open.