Real Estate Investment Property

Everybody needs somewhere to live. Real estate will always be in demand and investors will benefit from diminished availability as our population continues to expand.

Much like starting your own business, investing in real estate requires entrepreneurial skills and a vision, which is why not everyone is jumping on the real estate bandwagon.

In fact, most people aren't willing to take the risk that real estate investing entails; fortunately, these are the same people that will make you rich by renting from you or buying the “move-in” ready house that you flipped.

Various strategies can be used on the road to financial security with real estate investments. In one, investors "flip" properties by buying a house, renovating it in short order and selling for a profit. In another, investors purchase the property with the intent of owning it for many years. A common approach is to purchase an income-producing property such as a single-family home, an apartment building, an office or retail building or farmland with the intent to rent the property or units within it. By having tenants, investors benefit from not only any appreciation over time, but also the rental cash flow. There’s also some inflation protection because as operating costs increase, rents can increase as well.

Before you decide to invest in property, consider what kind of expertise you bring to the table. For example, contractors or even experienced do-it-yourselfers can renovate a property; lawyers might write up leases.

Or maybe your value is on the management side. Those thinking about becoming landlords should do some soul searching before deciding whether they can handle the job. Experts state that nine out of ten people aren't suited for the business of managing tenants or the constant upkeep that the property will require. And for an investor with a modestly sized piece of real estate, hiring a separate property manager can eat deeply into the bottom line. After all, income-producing real estate isn't just an investment—it’s a small business.

Be prepared to bring a certain amount of sweat equity into investment property! From the onset—deciding whether the property is affordable involves a lot of homework.

You should budget every cost that will be tacked on to the price, including closing costs and insurance. If the property is a fixer-upper, inspections should prove its structure is still sound; make sure to add improvement estimates into the equation, including a cushion for unforeseen extras.

As soon as income begins put some of the money into an escrow account for required fixes that pop up and disruptions in cash flow resulting from vacancies.

A downside to investment property is unless you are buying shares in a real estate investment trust—your money is not as liquid as it is when putting money into the stock market. And there are cycles in the real estate market. But also keep in mind that you can’t live in a mutual fund and you can’t build a house on top of an IRA.