The idea of real estate investing may bring to mind deep-pocketed firms and investors backed by generational wealth, but the truth is that it’s possible to get started in this field with relatively modest means. If you’d like to do so, consider these tips for getting your real estate venture off the ground.
Start with Your Home
The best place to start with real estate investing is the home that you live in. If you’re able, pay off your home before you move on to other properties. Doing so will give you both peace of mind and a huge boost to your net worth.
Know the Different Types of Profit
Familiarity with the two chief types of profit that real estate investing generates can help you decide which properties to pursue. Those profits come in the form of appreciation and rental income.
Appreciation is the increase of a home’s value over time. That can occur because of an area becoming more popular, the arrival of a new employer, and so on. It can also occur because of renovations the investor makes to the home. Appreciation results in a profit when the sale price is higher than the investor’s purchase price. However, this is a two-way street, per Investopedia: You should be aware of potential changes that may drive a home’s value down, too.
Rental income, meanwhile, comes from the steady stream of payments tenants make in exchange for use of the property. If you plan to pursue this method of income generation, be careful when selecting tenants and make sure all agreements are in writing.
Keep Taxes in Mind
Real estate investing has tax implications, as well. Capital gains taxes come into play when you’re selling a property for a profit, which can slice into the money you earn through appreciation. Rental income is subject to taxation as well. It’s advisable to meet with a tax expert to learn how to lessen your tax burden and maximize your income.
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