Considerations When Starting Out In Real Estate

Many people agree that real estate can be a great investment, but for those who may not have been previously exposed to the industry, it can be hard to “get into.” The thing about real estate is that it’s not a one-size-fits-all situation. There are different circumstances that better suit people in different conditions. With this blog, I hope to simplify and highlight the pros and cons of renting, buying, and building, as well as things to think about when considering getting a mortgage versus saving to carry out transactions in cash.

Renting

Renting is the ideal option for people in temporary situations: people moving to another country for a short period, people who want the flexibility of being able to pick up and leave at any time, young people trying to get on their feet, people wanting to be close to an area for a contracted job, etc. However, the drawback is that the goal should be for renting to really be just that: temporary. 

Of course, a lot of people just aren’t in the position to get out of renting, and that’s understandable. I see a lot of people, though, saying that they plan to rent forever. While your life decisions are your own choice, I highly advise people to consider long term, and I mean extremely long term. You don’t want to pass retirement age and still be spending a significant amount of your now extra-limited savings or income on a rental. I don’t discourage the idea of renting in general at all: I think that being introduced to the practice of having a large, set living expense to pay every month from a young age did help a lot in preparing me for a mortgage. By the time I was ready to apply, I already knew that I was capable of handling the responsibility of such a large monthly expense. 

Buying

The different aspects of buying real estate is where we see the “investment” part come into play, because once that property is in your name, it becomes an asset, which can generate income, lower your expenses and store wealth. For example, when we hear about billionaires being worth iCantImagineThisLevelOfWealth Dollars, the reality is that they do not have that figure in cash, that’s the total value of all of their assets (and likely the assets of their respective businesses combined).

So how does real estate become an asset? Well, say you have a family home worth $400,000, of course you can sell it for the same amount and gain that cash, but with enough maintenance and improvements, the price of the property can also increase during your ownership. This is what makes real estate a generally “safe” investment, as long as you are able to pay off your loan if you’ve used one for purchase. An even “safer” investment would be what’s often referred to as an investment property: property that’s purchased with the intention of renting it out or selling it. You can buy a multi-family residential property like a duplex, triplex etc. and rent these out for additional income, buy a commercial property and rent the spaces out to businesses, or may even invest in a residential community with the intention of selling each unit or home in exchange for cash. 

Building

There is some degree of risk with every real estate transaction, but it may be greater with building considering the higher amount of  time, energy and money put into the process. However, if done correctly the first time, building can save money in the long run by prolonging the amount of time it will take before you have to start spending money again on repairs and maintenance. Real estate developers will often invest in huge developments such as a gated community or large plaza with the intention of selling it upon completion. This not only presents an opportunity for an immediate cash-return on your initial investment, but also eliminates the liability of having to continuously pay for the upkeep of the property (unless the developer also maintains ownership of the property as a whole, and therefore is responsible for maintenance of amenities and shared areas).