Important Real Estate Investing Tips
When it comes to growing your money, there’s not always a one-size fits all answer.
The most common form of investing is stocks and bonds, but other people
take more risk by day trading, or investing in commodities.
Another option is real estate and buying property, and you need to understand the risks and rewards of investing in real estate.
Your budget
Your ability to create a budget and save money is the biggest factor in investing. You need to consistently save and invest over time to succeed as an investor.
Action Steps To Consider
- Create a budget, even if that budget is simply on notebook paper.
- Separate your expenses between fixed and variable, and take a hard look at your variable spending.
- Take steps to cut your variable expenses each month and put the amount you save into a separate savings account.
Once you’ve funded an emergency account to cover unexpected costs, such as a car repair, you can start investing.
If you’ve had a financial setback, this article can help.
What’s a Reasonable Rate of Return?
Before you invest in real estate, you need to consider all investing options, and what you should consider as a normal rate of return.
As of 1/22/18, the Dow Jones Industrial Average (DJIA) closed at an insane 26,214.60, up 32.4% in the last 12 months. The DJIA is an index of 30 large corporate stocks. A broader index, the Standard and Poor’s (S&P) 500, closed at 2,832.97 on 1/22, and this is an index of 500 large stocks- a bigger basket of stocks. The S&P 500 is up 24.7% over the last 12 months.
Crazy, record-setting performance… and it’s stressful to consider the fact that every bull market ends. Expecting a 25%-plus annual return is simply not realistic.
It may seem like everyone around you is getting rich- but that’s normal. In every bull market I’ve seen since the ’87 market crash, most of us think that everyone else is making a pile of money.
But there’s a trade-off. The people who are really killing it in the markets these days are taking more risk (Bitcoin, anyone?). They either have larger percentage of their total portfolios in stock (vs. bond or cash), and they’re buying riskier stocks- stocks that have less of a performance history of earnings and sales.
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So, what’s a “normal return” on stocks, if such a number exists? Seeking Alpha (a site I highly recommend) has some great stats on historical returns for the S&P 500 from 1928 to 2015:
- Over 88 years, the S&P 500 went up 64 years and went down 24 years.
- The worst return was -43.84% in 1931 (ouch) .The best return was 52.56% in 1954.
- The mean return (think average) was 4122%
So, what’s normal? Seeking Alpha says 11%, and other stats suggest 8-10% over a 70-80 year period. The point is that 24-32% isn’t normal.
Accept the fact that, over the long-run, you’re not going to earn more than the historical “normal” return.
The same is true in real estate, because the long-term rates of return aren’t much different from stock and bond investing. Over time, you’re going to earn the “normal”, or average rate of return on real estate. Investopedia explains that the rate is typically between 9 and 11% annually.
So think about some of the real estate markets that are on the rise. If you buy at a low price and wait for the economy to improve, or you buy and develop the property, you may be able to make some money from it.
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Alternatively, you may consider newer developments, such as the KINGSFORD HURAY DEVELOPMENT, that people may be interested in living in. Then, you can invest in a property and take a tenant so that you’re able to make a small amount of money on a monthly basis.
Use these tips to save money to invest, and to understand the risks and returns. Find an expert who can help you with specific real estate investing options.
Ken Boyd
Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies
Co-Founder: accountinged.com
(email) ken@stltest.net
(website and blog) https://www.accountingaccidentally.com/