Should you invest in real estate?

Are you thinking about investing in real estate? This has been a popular market for investors for a long time, and you may think it’s time you got on board. Before you begin to invest in real estate, however, you need to be sure this is the right path for you. Take some time to review the types of investments you can look into, and the pros and cons of this route.

What are the different types of real estate investments?

Rental properties

Buying a property and renting it out is a common way to invest in real estate. When rental demand is high, this can be a good way to ensure a solid return on your investment. When you own a rental property, you are essentially using your tenants’ rent to pay off the mortgage on the home. The rent you charge will depend on the area and the property itself, but the idea is to make as much, or more, each month as your mortgage costs. Over time, you will build equity in the property. Once the mortgage is paid off, you then have a passive source of income. 

Of course, owning a rental property means becoming a landlord. It is your responsibility to find good tenants and ensure they pay their rent. You must also be ready to deal with emergencies such as broken appliances, floods, or other damages. Being a landlord can be a stressful position if you are not prepared to commit to it.

Commercial investments

Commercial investments are somewhat similar to residential investments, but with a few key differences. When you invest in a commercial property, you are renting out a place for workspaces to operate. These may include office buildings, hotels, malls, medical offices, or any other form of business. This is a scaled-up version of individual rental properties, when you are only responsible for one tenant. With multiple people involved in the process, it becomes more time-consuming to get the ball rolling. It is also, of course, more expensive to invest in a commercial space, given the size and number of tenants. However, this can result in a big reward with a higher payoff.

Private investments

Private mortgages operate through the use of Mortgage Investment Companies (MICs), which are groups of individual investors who purchase shares within the company. These shares fund private mortgage products for borrowers. Since interest rates on these products are usually high, the return on your investment can be quite large as well. The exact amount you make depends on how much you invest. Private mortgages are generally shorter-term solutions, so investors will see results more quickly than other forms of investing. 

House flipping

House flipping is a risky form of real estate investing, and is not designed for people new to investments! Flipping a house means buying a home in need of major repairs or renovations, often at a low price. The owner then completes upgrades that improve the value of the home enough to resell it at a profit. The reason this is a risky investment is because the flipping process must be done quickly, while market conditions are the same. If you were to buy a home during a period of high demand, but could not sell it until a year later, demand may have cooled off. This means you could have a second home on your hands that you can’t sell, and are therefore financially responsible for. Only experienced investors should consider this form of real estate investing.

What are the pros and cons?

Let’s start with the positives and the potential of real estate investing! The biggest benefit is the amount of control you have. When you invest in stocks and bonds, you have limited control over what happens with your investments. When you own real estate and manage a property, however, everything is in your power. You can choose your tenants, rent prices, and how your property is managed. This is a huge advantage for people who prefer a more hands-on investment style. The other benefit is the potential to have access to regular cash flow. If you choose your tenants wisely, you can count on a steady and predictable income stream.

On the other hand, there are some drawbacks to be aware of before you invest in real estate. While the return potential is high, the initial cost of these investments can be a huge barrier. You need a down payment and mortgage approval to purchase a property, and you will have ongoing utility and maintenance costs. If you cannot find tenants, you will be stuck paying for all of these expenses on your own. Real estate investing also involves more hands-on responsibility than investing in stocks or bonds. You are your tenants’ point of contact, and you are in charge of every aspect of the property. Real estate investments are very involved and require a much greater time commitment.

Investing in real estate can be a great option for some people while simply not being a good match for others. If you are unsure whether you should invest in real estate, you should begin by reaching out to a mortgage broker. We can discuss your investment goals to determine what you hope to achieve and whether real estate is the right path. It’s important to be confident in your decisions as an investor, so you must ensure it is a commitment you are prepared to make.

If you have any questions about your mortgage, give us a call at Centum Home Lenders! You can reach us at 506-854-6847, or get in touch with us here.