Why invest in real estate?
Real estate investing for beginners is usually a safe road to future financial security. Beginners investing in real estate will notice that real estate is a less volatile market than other forms of investing. Rental properties provide additional income with few day-to-day requirements. Investors can qualify for many tax breaks making their investment more lucrative. In the long run, real estate investments tend to bring positive returns.
Where should I put my money?
When investing in real estate it is paramount that you protect your cash reserves. Saving first and buying later means that the first purchase needs to be affordable. Start with small, affordable properties in the range of $30,000-$60,000. These properties are more likely to provide a positive cash flow than the more expensive ones on the market. When in doubt, follow three simple guidelines.
- Assume that 50% of your profits will go to maintenance and other expenses.
- Do your homework; if your rental market doesn’t support monthly rent of at least 1% of your property investment price, don’t buy.
- Save at least 20% for a down payment before purchasing.
Basically, rental properties that are less expensive will provide a more steady and positive rental income. Properties in areas with a higher cost of living usually come with rent control policies. The higher the cost of the property, the higher the rent needs to be to make it profitable.
What are the drawbacks to investing?
Real estate investing is usually safe compared to other types of investments. However, the 2008 financial crisis showed that even real estate wasn’t immune to catastrophic downturns. The real estate market plummeted during this time. Real estate investors, like other investors, can have situations where their investment depreciates or provides a negative return.
Barring out of the ordinary catastrophes, real estate investments are generally safe. For this reason, investors shouldn’t expect high returns in this sector as seen in the stock market. Where less risk is involved there are fewer gains.
Real estate investing requires more upfront capital than other forms of investment. Saving scrupulously for a few years is what it takes to get your first 20% down payment for a modest property. After cash flow is established from the starter property, savings continue but are supplemented by rental income profits.
If you’re entering the real estate market in Boston and are in need of contractor services, contact our team at R.H. Blanchard today.