Real Estate Investing Guide to Beginners

Surely you are wondering: how can I invest in real estate to generate profits?

In other words, when you invest in real estate you are making your money start working for you to obtain income in the future, that is, you begin to generate passive income. Of course, the yield that you obtain from each investment should be bigger than taxes, risks and other types of expenses that must assume as owner of a property (for example, paying utilities, taxes, maintenance, and home insurance).

From the conceptual point of view, investing in real estate can be as simple as playing Monopoly once you understand the basic factors such as investment, economy, and risk. Thus, to receive profits you need to acquire properties, avoid going bankrupt and rent the properties so that in the future you can buy more properties.

However, keep in mind that “simple” is not synonymous with “easy”. If you make a mistake, the consequences can range from minor inconveniences to major disasters.

4 ways to earn money investing in real estate?

When you decide to invest in real estate, there are several ways for generating income:

Real estate valuation of assets

This occurs when a property increases in value due to a change in the housing market. For example, the land around a property could become cheaper or more expensive if a large shopping center is built nearby. You can also make improvements that make the property more attractive to buyers.

Real estate valuation can be a tricky business, as it is unpredictable. Therefore, if you are looking to receive profits through this option, keep in mind that the investment risk is high.

Cash flow income

This type of real estate investment focuses on buying a property and renting it, so that you can receive a cash flow as a result of the tenant’s rent payment.

Cash flow income can be generated by different types of properties, such as buildings with multiple apartments, warehouses, offices, retail establishments, among others.

Real estate related income

These revenues are generated by specialists in the real estate industry, for example, real estate brokers or property management companies. These professionals earn money by obtaining commissions from the properties in which they have helped clients buy or sell, thus keeping a percentage of the returns obtained.

Ancillary real estate investment income

For some real estate investments, this can be a great source of profit. Ancillary real estate investment income includes things like vending machines in office buildings or laundry facilities in rental apartment complexes.

In fact, this form of investment serves as a mini business within a larger real estate investment, making it possible to make money with a group of semi-captive clients.

Tips for your first investment in real estate

There are several ways to make your first real estate investment. For example, if you are buying a property, you can formalize a mortgage. This technique is known as “leverage”, because in a certain way you are leaning on the bank to make the purchase.

Leverage is what attracts many real estate investors as it allows them to acquire properties that they might not otherwise be able to afford.

However, using leverage to buy a property can be dangerous because, in a declining market, interest expenses and regular mortgage payments could put you out of business if you are not careful about it.

Advantages of investing in real estate

Lower risk than the stock market

The housing market is not subject to the same volatility as the stock or cryptocurrency market. Of course, this form of investment does not have the same earning potential, but it can allow you a steady flow of money most of the time, and with much less risk.

Stable money flow

When you have enough rental properties, you can generate a reliable income stream.

Tax exemptions

Real estate investors can deduct all kinds of expenses from their taxes, including mortgage interest, depreciation, property tax, and more.

Long-term returns are generally positive

Over time, most properties will increase in value. One of the problems of monetary inflation is that money is constantly devalued, thus reducing people’s purchasing power. That is why it is interesting for people to be able to have money in assets that remain at least constant over time, but with the possibility of their value increasing.

Disadvantages of investing in real estate

The potential returns are not as high as the stock market

From 1991 to 2019, the S&P 500 gained more than 600%, while housing prices increased about 160%.

Investing in real estate may require large amounts of liquidity

If you really want a steady stream of income, then you need to have enough cash available (either your own or borrowed) to pay for property improvements, maintenance, administrative expenses, and more.

Properties are not liquid investments

You cannot convert a property to cash quickly, unlike the case of selling a stock.

Tenant management and building maintenance is a challenge

Whether you hire a manager or not, when managing a property there are all kinds of unexpected problems, such as back rent, roof leaks, power outages, and other issues that can cost money, and time to fix the situation at hand.

Conclusion

As you may have observed, in this post we have revealed the secrets to you, the first steps to take to obtain benefits, and make investments with common sense within several markets that are, today, very promising. However…

Wouldn’t it be great if there was a solution that could eliminate all these disadvantages?

It does exist, it is called Brickken! Our platform offers investors the opportunity to invest in real estate starting as low as €100. Yes, just by investing €100 you can become a fractional owner of a property. Even better, these €100 are liquid! At any time, it is possible to sell your share of the real estate that you have invested in or even buy more from other potential sellers.

Additionally, when investing in real estate with Brickken, tenant management and building maintenance are also the responsibility of Brickken. No need to worry about tenants not paying on time or a leaky roof!

At Brickken, we genuinely believe that we are the best of both worlds. We offer investors the benefits of real estate investing without having to worry about huge capital and the hassle of obtaining returns from the exploitation of the asset.

It is why we pride ourselves on calling ourselves the future of investing. Read more about it here or watch the video below:

If you found it interesting, remember that you can read other entries in our BLOG.

Published On: February 8, 2021Categories: Finance0 Comments

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