Investing in the real estate market requires a relatively large amount of capital, making it count among significant investments. If you intend to buy property, you must learn about income-generating methods and the buying and selling process in this market. Additionally, to mitigate transactional risks, it’s necessary to define your path and objectives. Therefore, it’s better for novice investors in the real estate market to be familiar with its risks, concepts, and principles. In this article, we aim to address the guidance points for real estate investment for beginners.
Why Real Estate Investment Is Suitable?
A look at the history of financial markets shows that this market has always followed an upward trend, making it particularly attractive to investors. Due to the minimal fluctuations in real estate in the short term, investing in the real estate market is considered a low-risk option. In other words, real estate investment is one of the best ways to increase assets and create a continuous cash flow.
On the other hand, the real estate market, like other financial markets such as gold, forex, and digital currencies, is not particularly complex. Therefore, you do not need a high level of knowledge to buy property and invest in the real estate market. In fact, to do this, it’s enough to follow some fundamental news in macroeconomics.
Guide to Pros and Cons of Real Estate Investment for Beginners
Real estate investment has multiple features that distinguish it from other investment methods. However, every type of investment has its own pros and cons, and real estate investment is no exception. To make better investment decisions, it’s necessary to be familiar with the advantages and disadvantages. Below are the guidance points on the pros and cons of real estate investment for beginners:
Types of Real Estate Investment
As mentioned, investing in real estate and properties is one of the most common and profitable investment methods globally. Many individuals earn substantial income from buying and selling, renting, pre-purchasing, and participating in property construction. However, when it comes to real estate, people usually picture a house or villa in their minds. But the term “real estate” does not only refer to houses and villas. In fact, real estate investment is carried out through various methods, and thus, the types of real estate investment can be divided into several categories. Below, we describe the types of real estate investment for beginners in further detail.
Guide to Residential Real Estate Investment for Beginners
Investing in residential property involves buying and renting out apartments, houses, villas, suites, etc. Although this type of investment usually has moderate returns and low risk, it requires property management and maintenance, as well as knowledge of tenant laws and compliance.
Guide to Commercial Real Estate Investment for Beginners
Investing in commercial property includes buying and leasing offices, shops, warehouses, factories, hotels, restaurants, and other spaces for starting businesses. This type of investment typically offers high returns with moderate risk, but it requires substantial initial capital, expertise and experience in business and commercial real estate, as well as familiarity with landlord laws and compliance.
Guide to Industrial Real Estate Investment
Investing in industrial property involves buying and leasing land, workshops, factories, mines, etc. This type of investment usually offers very high returns with high risk, but it requires significant initial capital, expertise and experience in industry and industrial real estate, as well as familiarity with environmental and safety laws and compliance.
Guide to Agricultural Real Estate Investment
Investing in agricultural property includes buying and leasing land, orchards, farms, animal husbandry, etc. This type of investment typically offers low returns and low risk, but it requires knowledge and experience in agriculture, as well as familiarity with agricultural and livestock laws and compliance.
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Guide to Pre-Sale and Pre-Purchase Real Estate Investment for Beginners
Pre-sale and pre-purchase of properties involve owning land or property but lacking sufficient capital to construct it. In this case, you hire a contractor to proceed with the construction. Therefore, all construction costs are borne by you as the investor, and all responsibilities lie with the contractor. However, it is essential to ensure the contractor’s credibility before entrusting them with the work.
This method is one of the simplest and least labor-intensive real estate investment methods. Moreover, you can earn significant income from selling the constructed apartments. The contractor receives a share for constructing each section or unit and also manages the work. As the investor, once the property construction is completed, you can rent it out at market rates or sell the units. In this scenario, you, as the investor, will receive all profits.
Guide to Fundamental Real Estate Investment Principles for Beginners
To experience successful investment in the real estate sector, it’s necessary to go through several stages. These stages help you make the best possible decisions and thus minimize your risks and errors to the lowest possible level. Below, we’ll outline the guide to fundamental stages for real estate investment for beginners.
Define Your Goal
According to experts, the link between investment and the future is a turning point because investing is essentially a form of financial planning. Therefore, in addition to considering what type of property may be suitable for you in terms of current value, you must also consider its value in the future market. If your goal is to reside in the property or derive commercial benefits from it, you must evaluate your goal accordingly. Additionally, if you intend to rent out your property, you must make necessary arrangements. On the other hand, you may consider commercial real estate investments or assess the benefits of efficient land.
Choosing the Right Property Type for Investment
As mentioned, there are various types of real estate investments, each with its own pros and cons. In fact, you must choose a property based on your interests, objectives, budget, and your risk tolerance level. To do this, you need to become familiar with the real estate market and utilize reliable sources such as experienced consultants, books, magazines, websites, and other informational resources. Moreover, you should be aware of the advantages and disadvantages of different types of properties and choose one or more types of properties for investment according to your needs and capabilities.
Guide to Selecting an Appropriate Area for Real Estate Investment for Beginners
After selecting the type of property, the next step is choosing the area. It is recommended to choose an area for investment that has favorable conditions. To do this, you need to consider various factors when selecting the area, including:
Property prices: It’s better to choose an area where property prices align with your budget. Moreover, you should consider that property prices in different areas depend on various factors such as geographical location, supply and demand, infrastructure, security, and more. Therefore, you should select an area that has the potential for price appreciation.
Rental market: It is advisable to consider an area with a vibrant and stable rental market. Also, keep in mind that rental markets in different areas depend on factors such as population, income level, standard of living, culture, traffic, income and expenses, etc. Therefore, it’s better to consider an area where rental properties have high demand and low supply.
Potential for growth and development: It’s best to choose an area for real estate investment that has a good potential for economic, social, and cultural growth and development. It’s worth mentioning that growth and development in different areas depend on factors such as government policies, infrastructure projects, commercial and business activities, tourism, etc. Overall, it’s better to consider an area that promises a lucrative future.
Estimating Investment Costs
In the fourth stage of the beginner’s guide to real estate investment, you need to estimate your investment costs. You must have an estimate of your investment costs. Please note that real estate investment is not only about the cost of purchasing the property but also involves ancillary costs, some of which include:
Down payment: The down payment typically comprises 10% to 30% of the property price, which you need to pay in cash. By paying this amount, you can benefit from bank facilities with lower interest rates and increase your credibility.
Bank loan costs: Bank loan costs include the loan amount, interest, fees, insurance, etc., which you pay to the bank. By paying these costs, you can cover a significant portion of the property price. However, it’s worth noting that these costs can prolong the return on your investment.
Official document costs: Official document costs include consultant fees, lawyer fees, office fees, registration office fees, etc., for property transactions. By paying these costs, you ensure the legality and security of your transaction, although these costs may reduce your net profit.
Real Estate Investment Promises a Bright Future for Individuals
In this article of FFMAG, we’ve highlighted the most important points of the beginner’s guide to real estate investment. While real estate investment may seem straightforward at first glance, it’s not the case in reality and comes with its own unique challenges. Therefore, experts in this field believe that learning and creating a smart and goal-oriented strategy form a solid foundation that can pave the way for your success.
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