Real estate investing tips for investors looking to get into the market

real estate investing tips

Are you in the market right now to make a real estate investment? If so, be sure to follow these real estate investing tips

The first of our real estate investing tips is this. Buy a house that suits your needs, and then let real estate investing profits take care of themselves.

Here are more Successful Investor real estate investing tips:


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Real estate investing tips: There can be substantial risks in real estate investing

There are risks associated with real estate investing: real estate is illiquid, expensive to manage and buy or sell, and highly concentrated geographically. In addition, rising crime, unpleasant neighbours and other changes in the neighbourhood of your property can make it hard to find tenants or buyers. So can physical problems, like nearby sinkholes, adverse traffic patterns, backed-up sewers and zoning changes that allow undesirable development, or limit what you can do with your property.

Most real estate investing millionaires earned their profits by taking on a lot of risk, worry and work. They also went into it with realistic expectations and the intention of sticking with it for many years.

Many also owe at least part of their real estate investing success to timing: they bought when real estate had been in the doldrums for years. If you buy at or near the end of a boom in prices, you may need to wait for a subsequent boom before you can sell for much of a profit.

Considerations for treating real estate as an investment

  • Consider personal financial goals and temperament
  • Consider the diversification or concentration of your holdings—just like you would when buying stocks using our Successful Investor approach
  • The quality and outlook of the investment
  • Your tax situation

6 key real estate investing tips

  • Tax pluses. Homeowners get the tax-free, rent-free benefit of having a place to live. Profits on sales of principal residences are also tax-free.
  • For maximum investment safety, buy the most common house in your area—a two-story four-bedroom, say, or a three-bedroom bungalow. It’s usually easiest to sell.
  • Growth in nearby job and leisure opportunities raises land demand. That pushes up land values. But land supply can increase too, from rezoning of industrial or agricultural land to residential use, or from cuts in minimum lot sizes.
  • For maximum capital gains, buy a small house on a big lot in an improving area. It may sell for little more than land value. Years later, you may be able to demolish the house and divide the land into several building lots.
  • Another thing to consider is the quality of nearby schools, even if you don’t have children. Properties near good schools tend to have higher values, and attract a wider range of buyers when it’s time to sell.
  • For maximum enjoyment, buy a home that’s a little bigger and nicer than your family will need in the next, say, 10 years. Chances are you won’t regret it.

Real estate investing tips for Successful Investors looking to buy right now

My advice to those now in the market to buy is to go ahead with a house purchase as a consumer item, provided that you can live with any temporary price decline that may come along. If you hang on to your house and use it as your principal residence for a decade or two, you’ll probably wind up with a substantial capital gain. Better yet, that gain will probably be tax-free, as it is under current Canadian tax laws.

Of course, before buying you’ll want to be reasonably sure that you’ll be able to make the payments on your mortgage, as well as taxes and other expenses, and live with the higher interest rates you may face when that mortgage matures.

Real estate investing tips: Understanding how interest rate movements can affect prices

If interest rates continue to creep up gradually, it may force some would-be buyers out of the market, and lead others to lower the price they are able or willing to pay. Fewer houses will change hands in that case. House prices may hold steady, or move down a little.

If interest rates were to shoot up in the midst of an economic setback and rising unemployment, it would force more buyers out of the market, while forcing many others to cut their house-buying budget. In addition, some of the newly unemployed might dump their houses on the market, because they won’t be able to keep up their current mortgage payments, let alone refinance when their current low-interest mortgages come due. In that case, it could result in a deeper slump in house prices.

Bonus Tip: Re-zoning can have a huge impact on real estate prices

Consider this: The land under a house provides a site for one house. But if a developer assembles a parcel of five or more adjacent houses, he might be able to win approval to build condominiums on the site, depending on the condo plan and the number of storeys the authorities allow.

This potential “change in use” and the value it generates attracts condo developers to buy the houses, of course.

Do you look at real estate as a good investment or are there too many distress signals for you to want to invest in real estate? Share your thoughts with us in the comments.

Comments

  • Andrew

    I’m a first time homebuyer and converted the proceeds of stock sales towards the house. My initial thought was that I became poorer, looking only at the portfolio value until the obvious kicked in and I added back in the house value.
    As a homeowner I’ll draw up a comparison of my REITS and the real property to gauge whether either moves ahead as my preferred investment type.
    Currently, my belief is that stocks are a preferred portion of a portfolio for its hands off approach to making money work for me. Time will tell.

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