One of the best ways to build wealth and save for your future goals as a foreigner is through real estate investments. Of course, the type of real estate investment you choose depends on those goals, and that's why there are numerous investment opportunities. However, the investment process relies on the same basic principles regardless of which path you decide to take. That said, we’re here to help you invest wisely as you dip your feet in the U.S. real estate market.
Why Should I Consider Investing?
Making wise investments is your first step to financial freedom. But before you embark on this journey, you need to develop financial literacy to help you make the right financial decisions.
Real estate investing is a supplementary way of making money instead of relying entirely on your monthly income. If you invest wisely, it can become your second source of income and help you immensely during challenging economic times, save on taxes, and build a solid post-retirement fund.
Factors to Consider Before You Can Start Real Estate Investing
Regardless of your financial situation, the investment process is the same. When choosing the best real estate investment path, you should consider your personal preferences and future economic expectations. Here is a detailed look at some of the most important factors to consider before starting investing.
The Amount of Financial Help You Need
With your financial goals laid out, you need to decide on the ideal real estate investment options and the best neighborhoods to invest in in South Florida. If you don't have enough real estate investment knowledge, you can get a real estate professional to manage your portfolio. They can help you choose the best properties for your budget, so you can invest wisely.
The location of your property is the most critical determinant of your real estate investment profitability. If investing in residential property, consider features such as proximity to amenities, scenic views, green spaces, and a friendly neighborhood status. But if you are investing in commercial property, consider elements such as proximity to transport hubs, markets, warehouses, freeways, and tax-exempt playing areas. By doing your research, you can speed up the investment process and find the ideal properties for your portfolio.
Real estate property valuation plays a significant role in the listing price, insurance, taxation, and investment analysis. There are various real estate valuation processes that you can use:
- Cost approach that considers the cost of the land and the construction price without considering depreciation.
- The sales comparison approach makes a comparison of property sales with the same characteristics in the location.
- Income approach that puts in mind your expected cash flow from the investment.
Purpose of the Investment
You can avoid financial distress associated with real estate investment by clarifying the purpose of the property before investing. In this case, you can determine whether you want to invest in:
- Buy and lease — Investing in this property type gives you a regular income and long-term value appreciation. First, however, you need to decide whether you're ready to deal with the responsibilities that come with being a landlord.
- Buy and sell (short-term) — You can invest in this type of property if you're looking for a quick and small profit. Generally, investing in this type of property involves buying a property under construction and selling it once it is complete.
- Buy and sell (long-term) — This type of property investment focuses on long-term value appreciation of the property. You can choose this type of real estate investment to complement your long-term goals, such as catering for your retirement.
The Prevailing Real Estate Market Condition
The real estate market changes from time to time. So before investing, study the real estate market predictions to know when to buy or sell. You can buy properties when the market prices are low and sell when the prices hike. It's therefore essential to do market research on the area before investing.
3 Ways to Invest Wisely in U.S. Real Estate
Investing in real estate is one of the best ways to have an income throughout the year. In addition, real estate investment helps add diversification to your portfolio.
Unlike investing in bonds and stocks, real estate investment allows you to pay a portion of the total cost upfront and pay the rest with interest over time. There are also numerous ways you can invest wisely in real estate.
If you have the patience to manage tenants, investing in rental properties is an excellent opportunity to make extra cash. However, you have a substantial amount of initial investment to cater for maintenance and vacant rooms. When done the right way, investing in rental properties:
- Provides you with a regular income
- Has multiple tax-deductible expenses
- Allows you to maximize capital through leverage
Real Estate Investment Groups (REIG)
This type of investment is ideal if you want to dive into real estate without the associated management stress. REIG is similar to mutual funds that invest in real estate and require you to have a capital cushion and access to financing.
In this type of investment, a company buys or builds apartment blocks or condos, then sells them to investors who join the group. You can purchase single or multiple units depending on your budget.
The company manages all the units collectively by handling maintenance, repairs, advertising vacancies, and interviewing tenants. As a result, it takes a percentage of the monthly rent as payment for managing the units.
The property lease is in the investor's name, with each unit pooling a portion of the rent to guard against occasional vacancies. That means you'll receive some payment even if your unit is empty. And as long as the number of vacant rooms doesn't spike, there should always be enough cash to cater for vacant units.
Real Estate Investment Trust (REIT)
If you desire to build a real estate portfolio without engaging in the traditional real estate transaction, then real estate investment trust is the way to go. In this case, a corporation or trust uses the investor's money to buy and manage real estate properties.
REITs are bought and sold on major exchange markets and require the corporation to pay 90% of its taxable income from the property as dividends. With this form of real investment opportunity, you can dive into non-residential properties such as business premises and malls without having to purchase them directly.
As a foreign real estate investor, the investment process may seem daunting. However, with the help of financial experts and advisors, you can invest wisely and choose the ideal real estate investment option that will give you maximum benefits with minimal risks.
If you need any expert financial advice, contact us and we will answer any questions you may have.