AgentInvesting

4 truths your clients should know before investing in real estate

  • Investors don’t have to be rich to get started, but they should treat investing like a business and carefully consider location.

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Despite its popularity for the past several decades, buying and owning brick-and-mortar properties is a lot more complicated than investing in equities and bonds. Owning and investing in real estate takes hard work and is not an easy road to riches.

If that were the case, everybody who owned an apartment building or a rental home would be wealthy. Even so, with smart real estate decisions, you can help your clients realize their financial goals a lot more simply than they might have believed.

Here are a few things for real estate agents to remind their new clients of when it comes to real estate investing.

Location matters more than the actual property does

New investors should study the best and the worst locations in their area before making a purchase. Seasoned investors might know how to make money in rough locations, but beginners should probably not attempt the same gamble.

A lower-priced single-family house at a below-market price in a shady location will not attract good tenants if the neighbors are not pleasant or if the area is crime-ridden.

However, a successful rental located close to a major school might be an easy home to rent provided that the owners find the time to properly screen potential tenants before renting to them.

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If your client buys a property near a major university, students will likely want to rent it year after year, which provides your client with steady and dependable rental income and no difficulty finding renters.

Real estate investment is a business, not a hobby

New real estate investors often make the mistake of treating their properties as a hobby or a side project. Clients need to beware that if they approach their real estate businesses casually, they might never achieve their desired results.

If they take their investment as seriously as they would any other business endeavor, they will be successful.

Don’t look at investments as a get-rich quick scheme

People have made fortunes in the world of real estate, but buying properties does not usually bring a windfall overnight.

If your clients play their cards right and invest carefully, they can use their rental properties to profit gradually and gain back their initial investment, build wealth over time and pave the way to a more financially secure future.

You can invest in real estate without being rich

Many average Janes and Johns invest with careful savings and multiple financing options.

The largest and most common type of real estate property is the single-family house, followed closely by multiple-unit homes, such as duplexes and triplexes. If you’re just getting started, you can save yourself money with some easily overlooked deductions for investors.

Interestingly, if they have the space, some homeowners in their 30s rent out a room or a whole floor in their new home to help pay their mortgage. That rental income can go directly toward their loan principal.

Some live in their basement while allowing renters to live upstairs. This allows the homeowners to pay their mortgage off quickly with the cash flow they receive from their renters.

An estimated 17 percent of homeowners currently rent where they live. With a little creativity and smart real estate decisions, they can earn a profit over the long-haul, even with relatively small and humble beginnings.

If you help your new clients enter into real estate investing with realistic expectations, they will begin their investment career with all the facts so that they can be profitable in the long run.

Jackson Cooper is a writer and real estate enthusiast at Jensen and Company. Follow Jensen & Company on Twitter or Facebook.

Email Jackson Cooper.