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4 Frequently Asked Questions From Real Estate Investors

Real estate investing is a great way to build long-term wealth, diversify your portfolio, and generate passive income streams. It can even blossom into a highly successful family business or even an empire.

But whether you’re starting off small by doing a bit of house hacking or you’re going full-on landlord, this path isn’t always easy. It can be a complicated, time-consuming process that requires investors to have a solid understanding of a variety of factors. 

Let’s address a few of the most frequently asked questions about buying and selling real estate and some insightful answers that will be helpful for hopeful property investors.

What exactly is real estate investing, anyway?

Real estate investing has been a popular form of investment for centuries. It is the process of purchasing, managing, renting, and selling properties to make money and create wealth. This can be done in a variety of ways, such as leveraging rental income to purchase more units, flipping single-family homes for fun and profit, or simply holding onto a parcel for long-term appreciation. 

Many experienced investors choose real estate because it’s a tangible asset that can provide a steady influx of cash and typically increases in value over time. But it can also be a risky venture if you don’t do your due diligence and have a well-researched plan in place

Real estate can also be less volatile than other investments such as stocks and bonds. The housing market tends to be less affected by short-term economic fluctuations, which can provide investors with a hedge against inflation and sense of stability and security.

How do I find properties to invest in?

It’s vital to work with a professional real estate broker and a mortgage lender who are experienced in helping novice investors make informed decisions about possible opportunities.

There are several types of real estate you can invest in, each with its own advantages and disadvantages:

Residential properties → 

Single-family homes, multifamily apartments, short-term rentals, and condominiums can be a good choice if you’re looking for a steady stream of rental income. One advantage is the potential for higher rental yields compared to some other property classifications, but they also require more hands-on management and maintenance.

Commercial developments → 

Office buildings, shopping centers, industrial warehouses, and manufacturing can have a better ROI compared to residential properties; however, they also require a bigger investment and carry a more substantial level of risk. It’s essential to work with a broker who has proven commercial real estate know-how.

Land → 

This kind of investment involves purchasing land with the intention of developing it into commercial or residential properties, which needs a long-term strategy and are more speculative in nature, but they can offer substantial profit if done properly. You’ll need to perform some extensive research and be prepared to front costs like surveying and zoning permits.

REITs → 

A real estate investment trust is a company that owns, operates or finances real estate. These allow individuals to invest in large-scale, income-producing developments and enjoy receiving income without having to do all the footwork involved in sourcing viable rental properties. 

Many (but not all ) REITs are registered with the SEC and publicly traded. Be sure to consult with a skilled financial advisor to learn more about special tax considerations and how to avoid fraud. 

How do I pay for it?

Glad you asked! There are a myriad of financing options available for budding real estate investors, including traditional mortgages, private lenders, hard money loans, or a loan against the equity you’ve built up in your current home. 

If the home you’ve got your eye on will need a lot of renovations, you’ll need to calculate its estimated after-repair value (ARV). This is a key metric for successful real estate investors that also factors in local market conditions and comparable properties in the area (comps), and having this information in hand will help you more easily qualify for the right loan product.

Mortgages guaranteed by the Federal Housing Administration (FHA) can’t be used to directly finance an investment property, but you can utilize an FHA loan to purchase a multi-family building with up to four units, provided you make one your primary residence. The FHA also offers a mutil-family loan product for apartment buildings with 5 or more units.

Is being a landlord worth it?

With rising interest rates and an uncertain financial environment, going the landlord route as a real estate investment can be tricky. It’s not a get-rich-quick scheme. Constantly being responsible for repairs and dealing with unruly tenants can get old fast.

It’s crucial to have a clear picture of your financial situation and your goals before you begin the journey. Can you weather several months of having to pay two mortgages with no rental income?

Setting realistic expectations is also essential — if you’re not very organized and have never picked up a hammer, buying a 4-unit apartment building to completely renovate might not be the wisest investment, especially if you’re also working full-time. 

There are many more elements to keep in mind when you’re considering investing in real estate. The Chicagoland market is highly unique and constantly evolving, but it offers aspiring investors a spectrum of opportunities for generating additional income and growing wealth. Ready to learn more? Contact me today!

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