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How to Invest in Real Estate | A Powerful Guide for Beginners

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How to invest in real estate is a common question for real estate beginner investors. There are many choices when looking for investment options, such as stocks, bonds, exchange-traded funds, real estate, and mutual funds. For new investors, forex or cryptocurrency may be too volatile. Your choice will depend on how much money you have to start investing, how involved you are in investing, and your risk tolerance.

Owning and buying real estate can be both satisfying and lucrative. By paying a portion of the total cost upfront, prospective real estate owners can use leverage to buy property. After that, pay off the balance and interest over time.

How to Invest in Real Estate

A good investment has a high chance of success or a high return. An investment’s high level of risk can be balanced out by a high possible reward. However, there is no assurance that your investment will succeed, even if it has a high chance of success. If you can’t afford to lose that money, you shouldn’t put money into real estate.

A traditional mortgage usually requires a 20% to 25% down payment. Sometimes a 5% down payment is enough to buy an entire property.

How to Invest in Real Estate

Here are five simple ways to invest in real estate:

1. Rental Properties

Owning rental properties can be a great opportunity for individuals who have to do it themselves. You need skills to invest in rental properties, such as renovation skills and patience to manage tenants.

Pros

• Provides consistent revenue, and properties can appreciate

• Maximizes capital through leverage

• Many tax-deductible associated expenses

Cons

• Managing tenants can be annoying

• Probably damage property from tenants

• Reduce income from potential vacancies

According to new data, from the 1960s to 2007, the sales prices of new homes consistently increased in value before the financial crisis. Sales prices then started to rise again, even surpassing pre-crisis levels. But COVID-19 affects real estate prices deeply. 

How to Invest in Real Estate

2. Real Estate Investment Groups (REIGs)

For people who want to rental real estate without the struggle of running it, real estate investment groups are an idea for them. Investing in real estate requires access to financing and a capital cushion.

A company buys or builds a set of apartment blocks or condos in a typical real estate investment group. After it allows investors to buy them through the company, thereby joining the group.

An investor can own one or multiple units of self-contained living space. The company operates the investment group, manages all of the units, handles the units, and interviews tenants. The company takes a percentage of the monthly rent to conduct these management tasks.

Pros

• A less active role than owning rentals.

• Provides income and appreciation

Cons

• Vacancy risks

• Easily manipulated by dishonest managers

• Fees similar to those attached to mutual funds

3. House flipping

House flipping is good for those who have experience in real estate marketing and valuation. House flipping requires capital and experience.

The riskier side of real estate investing is house flipping. Real estate flippers are different from buy-and-send landlords. Real estate flippers focus on profitably selling the undervalued properties they buy in less than six months.

Usually, property flippers don’t focus on improving properties. As a result, the investment must already be worth enough to make a profit without any alterations, or they will eliminate the property from the market.

Flippers may find themselves in trouble if they are unable to swiftly upload a property because they often don’t keep enough money to pay a mortgage on a property over the long-term.

There is another kind of flipper who buys properties at a reasonable price and sells them at a high price after some modifications. This is a long-term investment, but investors can only afford one or two properties at a time due to high prices.

Pros

• Shorter time span for capital commitment

• Can offer quick returns

Cons

• Requires a high level of knowledge

• Market can go down unexpectedly

4. Real Estate Investment Trusts (REITs)

If you want exposure portfolio to real estate without a traditional real estate transaction, a real estate investment trust is best for you.

Real estate investment is done through a trust that uses the investor’s money to buy and manage income properties. Like any other stock, REITs are bought and sold on the big exchanges.

In order to maintain corporation status, a corporation must pay out 90% of its taxable profits in the form of dividends. By doing this, REITs avoid paying corporate income tax.

REITs are a solid investment for stock market investors who desire regular income, like regular dividend-paying stocks. REITs afford investors entry into nonresidential investments, such as malls or office buildings, in comparison to the aforementioned types of real estate investments.

Real estate investment trusts are highly liquid because they are exchange-traded trusts. You will not need a real estate agent or a title transfer to help you cash out your investment. In other words, REITs are a more organized version of a real estate investment group.

Pros

• Essentially divided-paying stocks

• Core holdings tend to be long-term

Cons

•Traditional rental real estate’s usual leverage does not apply.

5. Online Rental Estate Platforms

For those who want to join others in investing in a bigger commercial or residential deal, real estate investing platforms are perfect for them. Online real estate platforms are used for investment, also known as real estate crowdfunding.

Online platforms are very beneficial for investors who are looking to finance projects with real estate developers. In some cases, you are able to diversify your portfolio even with less money.

Pros

• Can invest in single projects

• Geographic diversification

Cons

• Lockup tends to make people less liquid.

• Management fees

 

Frequently Asked Questions (FAQs) 

How do you actually invest in real estate? 

If you search on Google how to invest in real estate, you will find many articles. But in short, real estate requires planning, research, and execution. Steps to investing in real estate investments are:

• Define your goals and strategy

• Build a team

• Determine your budget and financing options

• Identify potential properties

• Conduct due diligence

• Make an offer and negotiate

• Close the deal and take ownership

• Manage the property

 

Is $5,000 enough to invest in real estate? 

Yes, you can start with as little as $5,000. This is a big misconception: investors need a lot of money to invest in real estate. If you diversify your investments, your chances of success can increase. But you need to be focused because some deals do not go as planned.

Is $10,000 enough to Invest in real estate? 

Yes, you can invest in real estate with $10,000. With this money, you can’t buy and flip a house, but there are many other options to invest in real estate. Options to invest in real estate with $10,000 are:

• Invest as a partner

• Real estate crowdfunding

• Use it as a down payment on a rental property

• Real estate wholesaling

• Transfer your own space into an Airbnb

• Find investment properties

How do beginners start real estate? 

The best ways to start investing in real estate as a beginner are:

• Buy REITs

• Use an online real estate investment program

• Think about investing in rental properties

• Consider flipping investment properties

• Rent out a room

How to Invest in Gold | A Powerful Guide for Beginners

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When considering a gold investment, everyone wonders how to invest in gold? Don’t restrict yourself to just purchasing physical gold, like coins or bullion. Buying shares of gold mining companies or gold exchange-traded funds (EFTs) are alternatives to investing in gold. Investors can also invest in gold by buying futures contracts and trading options.

How to Invest in Gold (Physical Gold) 

Investing in physical gold can be challenging for investors who are most used to trading stocks and bonds online. Buying physical gold means interacting with dealers outside, paying for storage, and obtaining insurance for your investment.

How to Invest in Gold

The three main options for investing in physical gold are:

1. Gold Coins

The weight of common gold coins is one or two ounces. Gold coin weights can also be half-ounce and quarter-ounce. The most widely available types of gold coins are collectible coins, such as South African Krugerrands, Canadian Maple Leafs, and American Gold Eagles. Be aware of some dealers who sell blanks or damaged coins.

Gold content may not entirely align with gold coin prices. In-demand coins are usually traded at a premium. For example, in mid-September 2020, retailers will sell just over $2,000. That represents an almost 5% markup over an equivalent amount of gold bullion. 

Local collectors or pawn shops may be able to help you find better deals on gold coins. But licenced dealers are safer to use to make purchases.

2. Gold Bullion

Bullion—large, shiny gold bars secured in a vault—is what most people think of when considering a gold investment.

Gold bullion ranges from a few grammes to 400 ounces. But it’s most commonly available in one- and 10-ounce bars. The price of gold per ounce is $1,998 (as of May 2020); this makes gold bullion an expensive investment. There is no way to get a fractional share of gold bars, like stocks.

Due to gold bullion’s high price, it’s important to use a reputable dealer. Pay for delivery with insurance and save it in a safe deposit box.

It’s essential to stay up-to-date on the price of gold if you choose to invest in gold bullion. Then you can pick the right time to buy; most dealers update their prices based on current market prices.

3. Gold Jewellery

You can also buy gold jewellery that you can wear. But there is a high chance of jewellery being damaged. Investing in gold jewellery carries many more risks than investing in pure gold.

Be careful about jewellery purchases, especially secondhand jewellery, because some dealers sell damaged secondhand jewellery. It can create trouble for you when you resell it. This makes it crucial that you buy investment jewellery from a reputable dealer and get as many documents as possible.

Before buying investment jewellery, check the purity of the gold. 100% pure gold is made of 24 karats. Less pure gold can decrease the value or raw value of gold components when they are melted into pure gold.

How to Invest in Gold

Purchase stock in Gold Miners to Invest in Gold

Investing in the stock of companies that mine, refine, and trade gold is simpler than buying physical gold. You can invest in the stocks of gold mining companies in your brokerage account.

The best gold stocks in the gold sector include:

Newmont Corp. (NEM)

Newmont is headquartered in Colorado and is the world’s largest gold mining company. In addition to Africa, it also operates mines in North and South America.

Franco-Neveda Corp.(FNV)

Franco-Neveda doesn’t have any gold mines. Instead, it purchases the rights to royalties from other gold miners.

Barrick Gold Corp. (GOLD)

Barrick Gold is headquartered in Toronto, and it is very giant in size. It operates in 13 countries around the world.

Always remember that the shares of stock of gold companies are based on gold prices, but they’re also related to each company’s current expenses and profitability. It means investing in any other stock and investing in gold companies carry the same risks. Usually, single stocks are volatile and do not provide the security of diversified funds.

Invest in Gold EFTs and Gold Mutual Funds

If you are looking for how to invest in gold for long-term stability, gold EFTs and mutual funds are good options for you because they offer more security and liquidity than physical gold. There are many different types of gold funds available. Some are passively managed index funds that track price or industry trends.

For example, the SPDR Gold Shares ETF (GLD) holds physical gold and deposit receipts, and its price tracks the price of physical bullion. On the other hand, passively managed funds like VanEck Vectors Gold Miners EFT (GDX) track the stocks of gold mining and refining companies. 

Some gold mutual funds are actively managed by professional investors, such as Franklin Templeton‘s Gold and Precious Metals Fund. These funds focus on beating passively managed index funds returns. But their changes in expense ratios are high.

Just remember, you are not buying gold like gold stocks, just paper that is theoretically backed by mining companies. This means the value of EFTs and mutual funds may not completely match up with the gold market price. Then these investments may not perform as well as physical gold.

Use Features and Options to Invest in Gold

The riskiest way to invest in gold is by trading features or options contracts. Features and option values are based entirely on the price of an underlying asset.

A feature contract is an agreement to buy or sell securities for a fixed price and date that can vary according to market conditions. On the other hand, an agreement gives you the option to buy or sell a security if it reaches a certain price on or before a fixed date.

You need an account at an online broker in order to invest in futures or options that offer these vehicles. Many brokerage firms offer trading in these securities. Brokerages acknowledge the risk of investing in derivatives, and that’s why they require account holders to sign additional forms. 

You can buy or sell options or equities through your brokerage account. Based on the number of contracts you buy or sell, most platforms charge a commission. In gold investment, you need to actively monitor their holdings so they can sell, roll over, or exercise their options. 

Should you Invest in Gold

Gold may offer you an investment safe haven if you’re concerned about inflation and othercalamities. Investing in gold in the short-term is highly volatile, but long-term investments can perform remarkably well.

According to your investment goal and risk tolerance, you can choose your investment options, such as physical gold, gold stocks, gold EFTs, and mutual funds. According to most advisors, you shouldn’t allocate more than 10% of your portfolio to it.

Almost all investments carry risks, including gold. The gold market takes a long time to learn. To add some of gold’s stability and sparkle to their portfolios, gold EFTs and mutual funds are the best choices.

Frequently Asked Questions (FAQs)

What are the best ways to invest in gold? 

Go on Google and search how to invest in gold, and you will find this answer: “The best and easiest way to invest in gold is through EFTs and mutual funds.” These securities each represent a fixed amount of gold per share. These funds can easily buy or sell in your brokerage account or retirement account. Mutual funds and gold EFTs are beginner friendly because of their low cost and low minimum requirements.

How much gold should I invest in? 

With a gold allocation of 10–15% in your investment, your overall return vitality will be reduced, and you will be better protected. This weighing doesn’t have to be in physical gold, but some physical gold offers other protections. There are many ways to reap the benefits of gold diversification. 

Is investing in gold a good idea? 

Yes, investing in gold is a good idea. Investing in gold is the safest investment that you can make. Gold investments have their values, and this is one of the most stable investments. Gold is accepted all over the world, so you can do gold investing anywhere in the world. Gold investments are best for long-term investors.

Are there any risks associated with investing in gold? 

Every investment has its own pros and cons. In the case of gold investing, the returns are very poor. If you buy physical gold and want to resell it, the chance of getting a profit is very low. Investing in gold is a good investment for long-term investors.