Is Real Estate the Best Path to Financial Freedom? Here’s What You Need to Know

In my opinion, real estate is one of the greatest assets that you can invest in and 90% of millionaires agree! That is because someone always needs a place to live, regardless of the financial climate. By investing in real estate, you give yourself the opportunity to add streams of income while doing very little. This gives you financial freedom through real estate, however, to be successful at building wealth in this way, you must educate yourself before making the leap. 

Here’s what you need to know. 

The Challenges and Risks of Real Estate Investing

Every investment, including real estate investing, comes with risks. This is why you need to do your research before you make any investment. And always remember that if something doesn’t feel right to you, don’t invest!

Here are five of the most common mistakes new real estate investors make:

1. Purchasing property before fully understanding the market. Prior to investing in real estate, some of the things you must understand are:

• Real estate market trends
• Vacancy rates in each area
• Historical appreciation rates for the area 
• Average rental rates 
• Property values
• Seasonal rental and vacancy fluctuations (especially if you are investing in short term rentals)
• Local infrastructure
• Amenities in the area
• Proximity to local attractions

 

2. The next mistake people make when trying to build financial freedom through real estate is not knowing which type of property is best for them and the lifestyle they want. While friends, family and even financial advisors will have their opinions, you need to make the decision that is right for you when it comes to real estate investing opportunities. 

Different investment options include:

• Fix and flips. This is where you purchase a property that needs upgrades, then you do the renovations and sell it at a higher price than your combined costs. This does require a large amount of money upfront, and you have to make sure you can afford the holding costs on the property if it takes time to sell. 
• Commercial property. While commercial properties often have higher price tags, they also have many advantages that include longer lease terms, tax benefits and higher rental rates. 
• Short-term rentals (STRs) cater to people like vacationers, digital nomads or traveling executives. STRs can let you be your own boss and can deliver higher real estate rental income, especially in high seasons, but you must be aware of seasonal lows and how they might affect your cash flow.  
• Single-family homes have only one living unit. The great thing about them is the lower cost of acquisition comparatively, and they typically have longer leases and lower property and management costs. 

• Multi-family homes have more than one living unit. This includes houses with basement suites, duplexes, triplexes or fourplexes and apartment buildings. While they cost more to acquire and have higher management costs, they also give you the opportunity for multiple streams of rental income from the same property. 
• Real Estate Investment Trusts (REITs) allow you to purchase stocks in companies that own or finance real estate across various property sectors. REITs give you the option to invest in real estate without the time and added financial costs (see below) of the other real estate opportunities outlined above. 

3. Not fully understanding the costs associated with the property beyond the purchase price, is another mistake rookie investors can make. This includes costs for: 

• Interest rates on mortgages, HELOCS, business lines of credit, etc.
• Property upgrades
• Permits
• Inspections
• Condominium and HOA fees
• Property taxes
• Utilities
• Repairs and maintenance
• Insurance
• Cleaning services
• Operational costs (rentals)
• Management costs

Each one of these things impact your ROI, so get to know your numbers and all of the associated costs before investing in real estate. 

4. Making emotional decisions instead of financially based ones is another challenge real estate investors must overcome. It’s so easy to fall in love with a property and imagine all the wonderful things that might go with it, but that kind of dreaming can get you into trouble and blind you to potential risks. 

This is why you must set your investment criteria before you even start looking at properties. Consider things like:

• Maximum investment caps
• Cash flow minimums
• Cash-on-cash return (Annual Cash Flow / Total Cash Invested)
• ROI
• Property condition
• Net operating income

Analyzing these things for each property will give you a non-emotional way to evaluate each one and even rate them based on financial potential, taking emotion out of the equation. This will set you up for better returns.  

5. Finally, the last mistake new real estate investors can make is putting all their eggs in one investment basket. 

It is never a good idea to have a single point of failure, no matter how you are investing your money. The more diversificationty you have the easier it will be to weather market fluctuations. 

One of the greatest financial tips I can give to any new investor is, as I said above, to do your research. Also consider working with a mentor or financial advisor who can help you make great decisions every step of the way. 

If you would like to get monthly Money Mentorship from me, I invite you to join me for Let’s Talk Money! During our live webinar sessions, I share my thoughts on:

• What is happening in the economy and financial world.
• What is influencing my financial decisions.
• Where I’m seeing opportunities for investors and business owners.

This Mentorship is a highly cost-effective way to get the guidance you need for building wealth and the life of your dreams.

>>CLICK HERE TO JOIN LET’S TALK MONEY TODAY<<

 

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