There is no doubt about the fact that real estate is one of the most lucrative industries in the world, at least according to statistics. According to statistics, this industry offers an average return on investment(ROI) of about 10.05% per annum. Of course, the figures depend on the type of property investment in question. For instance, residential rental properties have an average ROI of 10.6% while commercial rental properties have an average return on investment of 9.5%. That means if you put in about $100,000 in the business, you can expect to make around $10,000 in profits, on average, at the end of the year, assuming all factors remain constant. Sounds like a good business to start right? Well, that’s accurate because it is!
However, no matter how promising real estate business may sound to the effect of wealth creation, it should be noted that this sort of investment can prove to be painfully catastrophic, especially if entered without a proper strategy. A number of factors, including, economic conditions, a change in demographics, geographic location, and supply of property, can cause your hard-earned money to go down the drain. To learn how to cushion yourself against potential real estate investment losses and to be sure to grow your business, here are some invaluable tips you should know:
Tips To Best Grow Wealth In the Real Estate Industry
1. Only Consider Good Locations
When you start shopping for a land where you will build your residential units, you will find plenty of options that are going for a wide range of prices. When you decide to look for ready-built units, instead, still, you will come across numerous options available for an extensive array of prices.
Property price variations are normally caused by a number of factors, with one of the primary factors being location. For instance, properties that are located in prime areas such as those in or near urban/developed areas with better infrastructure and social amenities tend to cost more and vice versa. Why? because they have a high demand from tenants.
It’s a good idea to pick land or ready-built units that are located in a prime area. Even though you will pay more for such, the return on investment you will derive from this will definitely be higher, thanks to the higher demand coming from tenants. Avoid remote locations because of the lower rental prices homes built in such locations do attract.
2. Start with Residential Properties
As a starting investor in the real estate niche, you have two main investment options; residential properties or commercial properties. You might be torn between the two such that you are not able to decide which option to go for between the former and the latter. Well, experts recommend starting out with the residential option. That’s because residential properties carry lower risks than their commercial counterparts. The profits may be lower than commercial property profits, though, which isn’t a bad thing, taking into account the fact that your investment will be safer to build wealth.
3. Do Not be Afraid to Borrow Loans
Contrary to what you may have been told, borrowing is an essential part of the success journey. All the richest people you know, including Amazon’s Jeff Bezos, Microsoft’s Bill Gates and Facebook’s Mack Zuckerberg once borrowed money to boost their businesses. Some of these well-doing companies such as Microsoft, and Amazon are still not debt-free. That tells you a lot about the power of borrowing when it comes to shaping your financial future.
Try securing funds from creditors to put into your business. By the way, real estate investing requires higher capital not so many beginner investors have. Instead of launching mediocre projects simply because you are cash-strapped and debt-averse, change your attitude towards borrowing. After all, if you can’t give you can’t offer the best, you can’t expect to maximize your ROI and build wealth.
4. Consider Buying Dilapidated Units
Buying abandoned and dilapidated properties to rent can be another great idea to build wealth. Such properties are sold at throwaway prices and can be easily restored to their former glory with renovation. The good news is that, in some states, the governments provide stipends to encourage homeowners to renovate and restore their dilapidated properties. If you can acquire some units in good locations and renovate them, you can make some good money off of these properties, despite the fact that you invested very little amount of capital.
5. Play Your Part Well as a Landlord
Before you want to become a landlord, you should understand that this title comes with a huge responsibility and a myriad of obligations. According to the law, these duties and obligations broadly fall under three categories:
- The obligation to give the tenant possession of the building.
- The obligation and responsibility to provide a habitable condition for the tenant.
- The obligation to not interfere with the tenant’s use of the property as long as they utilizing the property accordingly.
Neglecting your duties and obligations as a landlord can result in serious lawsuits with your tenants, which could end up costing you a lot of money in the process. For example, in 2017, a UK landlord was fined heavily for changing the locks in order to vacate the tenant. Mr. Nathan Shipley was found guilty of violating one of his obligations as a landlord, which is to not interfere with the tenant’s occupation of the property and was compelled by the court to pay the plaintiff a sum of about $3600.
Three thousand six hundred dollars is thirty-six percent of the average return on investment on residential property. Assuming the landlord had made the bare minimum profit that year of $10,000,(which is the average return on investment of residential property), it means he lost 36 percent of it to just one tenant. If this investor could have been fined for similar violations against other tenants, he could have lost an overwhelming portion of his 2017’s return on investment.
Do not be fooled that there are any other secrets to become successful in real estate investing apart from the above. If you want to best grow wealth in the real estate industry as an investor, mind your location, start with residential units first, and do not be afraid to take loans to boost your business. In addition, think about investing in those promising, low-cost dilapidated units that abandoned in prime locations, and be sure to play your part well as a landlord to avoid costly penalties.