Becoming a real estate investor is the dream of many stock traders. Real estate helps build wealth more consistently and quickly than virtually any other investment asset class, and as a result, millions of people pour their heart and soul into this component of their portfolios.
Real estate investors often see a massive boost to their bottom line, but this doesn’t happen overnight. Likewise, just as in any other asset class, there are a number of costs to be considered when approaching the property market.
With this guide, learning the ropes of the real estate space can be made easy. Most importantly, this article will focus on the various and sometimes hidden costs of the property space so that you can always make informed decisions about your investment opportunities.
Time is a Critical Asset
The property market both soaks up and relies on the asset of time. This is one that many people fail to incorporate into their understanding of real estate investing.
The value of time is universal across all aspects of life, and the same goes for investments as well. When you purchase a property, you have to expend your time researching and going through the closing documentation in order to take possession of the asset.
This can take anywhere from a few days to a few weeks after a new investment property has been identified, but the truth is that you could spend months searching for the perfect opportunity before moving on an asset.
On the other end of the spectrum, any property that you bring into your portfolio can both be beneficial and hindered by time in cyclical patterns.
You may require a Clearwater bathroom remodel contractor to fix up a new property that you’ve purchased as a foreclosure; this will require time and financial capital to complete.
A bathroom remodel is a great way to spruce up a home in a flash, though, so this offers a potentially lucrative blueprint for a savvy investor.
Enticing new tenants to your rental property or buyers to your flipping project is far easier with the help of a contractor who can quickly revamp the home’s interior and exterior spaces.
Time can play a detrimental role, or provide a valuable addition: It’s up to you to make the most of the time you have with any new investment property.
Money Plays a Surprisingly Muted Role in Real Estate Investing
No matter how you want to approach the property market, monetary assets are crucial. Yet, in this unique commodity space, the actual capital that you bring to the table is far less important than in other aspects of a well-balanced portfolio.
This is because lenders are willing to provide a huge leverage margin in the form of a home loan for the purchase of a new piece of physical real estate.
But for those who are lacking in the funds necessary to take out a new mortgage loan but still want a piece of the action, there is another great asset opportunity out there.
Real estate investment trusts (REITs) offer the same great dividends that rental property owners rely on, but they come without the management (and time) constraints that traditional property investing brings into the fold.
The REIT vs real estate debate has been an ongoing one for many years, but it essentially boils down to this: REITs offer great dividends and lower risk, but physical real estate provides a greater asset appreciation metric over the long term.
Oftentimes, the income ratio of a REIT fund will compete for neck and neck with a traditional investment property, but without actual ownership over a unique physical real estate asset, you can’t expect to sell your ownership stake for as potentially high a return later on.
However, it’s important to remember that in either case, you’ll pay a small fee for ownership of REIT funds, and a monthly repayment on any mortgage loan you take out in order to purchase physical real estate.
Weighing these costs is crucial for those looking to build solid returns on their real estate and REIT investments.