Investing in Real Estate for Beginners | 2022 Guide

Investing in rudn enclave real estate is associated with buying an apartment for rent. Meanwhile, this is only one of the possibilities. First of all, you don’t always have to buy and not necessarily rent to pay off. So you don’t need a lot of cash at the start. In fact, The less you invest in the beginning the less stress and risk you have. As you gain experience your investment level can increase.

You should also remember that investing in real estate is usually not passive income. It’s not just about putting up cash and counting your profits. There is almost always something to do with real estate. So you will need money as well as time. Fortunately, they are interchangeable up to a point. If you have a lot of time and less money. You can take care of many things yourself. If time is a scarce commodity but you have a large budget. You can outsource some tasks. If you are short on time and money think carefully about whether this is the right time to invest in real estate.

So what forms of investing in real estate are safe? In which case is time more important and when is money? What is the risk and rate of return? Let’s check.

Property sublet

It is a good form at the beginning when we do not want to invest large funds immediately. But we have a lot of time. What is a sublet? This is a situation where we rent a property to someone that does not belong to us. First, we rent it ourselves from the owner and then we act as the host and rent it to other people.

It is necessary to run a business. In the contract, we conclude with the owner. We must have his consent for further lease. In the contract, It is also worth clarifying the principles of cooperation as precisely as possible, e.g. for what period the owner provides us with the property, what works can be done to increase its attractiveness, etc. It is also worth investing in appropriate training to familiarize yourself with applicable law and good practices.

Is subletting profitable?

Your income is the difference between the rent paid to you by the sub-tenants and the one you have to pay the landlord, less any costs you may incur to make your offer more attractive.

If you rent a “grandmother’s apartment” and invest some time and resources in refreshing it. Replacing furniture or getting rid of lumber. The standard of the property will significantly increase and this will justify a higher rent. So your earnings can be quite a lot.

The highest rates of return are obtained with short-term subletting. But then you need to have time to look after the condition of the property and search for clients frequently.

Buying real estate for rent

This is an option for those investors who already have some funds and want to invest them in real estate. With this investment the level of money and time involved is similar. It is not enough to buy and find tenants. Usually, the premises must first be renovated, adapted and then also take care of its condition.

Before buying it is worth considering what form of rental we are interested in because the choice of real estate depends on it.

• Long-term rent

The target groups are young couples, students, and employees who permanently live in another town. The advantage of this form is relatively stable income from rent and at the same time fewer obligations related to the maintenance of the property. For such a rental, small apartments located in a place attractive to our tenants – for young people, it will be an intimate housing estate with a kindergarten,, a clinic nearby. For students – located not far from the university and well connected to the city – will work best. These apartments are usually quite expensive.

• Short-term rental

Our tenants will most often be tourists, possibly extramural students, or participants of training courses and conferences. Therefore, the location of the property and good communication with the city center, which is the main purpose of short stays is important. For such a rental A larger property is best where you can rent separate rooms to different guests. However, it needs to be adjusted ensuring the appropriate number of bathrooms, access to the kitchen and additional equipment such as iron, towels, or bedding.

Short-term rental is associated with a greater rotation of tenants and greater commitment on our part for example, related to the need to clean and prepare the property for subsequent guests. You also have to take into account the faster wear of the equipment and more frequent repairs. It is necessary to organize a reservation system, issue keys, or a method of settling accounts with tenants.

Is the rental profitable?

It depends – on the location of the property, its standard, and even tenants. When estimating profitability, in addition to the purchase price and the expected amount of rent, notary and court fees, tax, insurance and possible expenses related to the adaptation of the property for rent must be taken into account. Later, there will also be the costs of renovations (planned and unforeseen), or situations where we will not have tenants and we will have to bear the running costs. So one should take into account that the real profit will be felt after some time.

The value of the property is unlikely to decline, so the investment is safe, even if the market situation forces a reduction in the rental price.

At the moment (May 2020), the average rate of return on investment, assuming that we do not use a loan, is approx. 6%. It seems that in the current situation, even taking a mortgage to finance part of the investment will be profitable. The interest rates are borrower-friendly, and the financial reserve will be useful in emergencies. For comparison, the interest rate on bank deposits is currently lower than the inflation rate, therefore they give a zero or even negative return on investment.

Is house flipping profitable?

The average rate of return for home flipping is 15%, but in some cases it can be 30% or even 50% or more. However, it must be remembered that the rule here is that the easier it is to earn. The more pitfalls there are:

• Underestimating the scope of the renovation, which will consume so many funds or will be so long that the return on investment will be symbolic or the running costs will consume the profit,
• buying a property without potential (unattractive district, troublesome neighborhood), which will only cause trouble instead of profit,
• Incorrectly conducted sales and thus obtaining a lower price or a long search for a buyer (which generates additional costs).

In addition, it must be remembered that there is quite a lot of competition on the market, not only from real estate brokers who catch the best deals first but also from more experienced investors. You need to spend a lot of time finding an attractive opportunity, not only browsing the ads (most of them go through the hands of intermediaries first) but also looking more actively – not necessarily in the place of residence. Appropriate theoretical knowledge about the real estate industry and applicable legal and tax regulations, as well as knowledge of the local market situation, will be useful.

Other forms of investing in real estate

If we have more capital and we already have some knowledge of the market, we can try to invest in real estate with a larger entry threshold.

• Commercial real estate

More and more companies do not feel the need to have their own headquarters and prefer to rent an office, warehouses, or “work” space. Therefore, for investors with more capital, the purchase of rudn enclave Islamabad real estate intended for rent for business purposes will be quite a lucrative form of capital allocation. Business tenants are usually longer contracts and therefore a stable source of income.

The entry threshold is quite high, because not only is the real estate price high, but it often has to be adapted to the requirements of future tenants. It is necessary to thoroughly research the market and needs to know which industry to focus on. Perhaps in a given area, instead of another office space, gastronomic establishments will be more suitable. This is important because if the space is attractive for the tenant in terms of business, we will also benefit. There is nothing worse than an investment that does not pay for itself, so it is in our best interest that it does not remain empty.

Is it profitable to buy commercial real estate for rent?

Basically yes. The profitability of the investment can be assumed either by comparing the purchase price with the rental price and calculating when we will “break even”, or more professionally – by calculating the rate of return, that is, by dividing the annual net rental income by the value of the property. The average rate of return at this point is 7-9%. It is worth noting that with the current interest rates, even taking a mortgage loan, the installments of which will reduce our net income, the rate of return is positive.

• Land – is it profitable?

Buying a plot of land that can be sold at a profit is a good idea but it is worth getting acquainted with the spatial development plan and investment plans of and other nearby investors. Then we do not risk that burdensome activities will arise in the vicinity of our plot in the future, which will discourage buyers. In addition, knowing the local market and the advantages and disadvantages of the area, it will be easier to initially analyze the chance of finding a customer who will be ready to pay a sufficiently high price. Sometimes, however, we will have to wait for the return on investment.

Read more for Real Estate Investment Tips

Risk In Financing

We bear an even greater risk by financing the construction of such real estate without first checking the investor’s credibility. The bankruptcy of the company or simply the developer’s dishonesty may deprive us of a large amount of money.

We have presented several options for investing in real estate. Most investments will give us a return higher than bank deposits. Real estate is also slower than other industries in responding to economic fluctuations, and people will always need housing.

However, We encourage you to explore the subject first. Preferably during training sessions organized by professionals because the issue is not simple If you can learn from others.