If you’ve ever sold or purchased property, you may have come across the abbreviation REI. But what does REI stand for – This stands for Real Estate Investing. REI is a reference to real estate that’s bought, managed, rented, or sold for profit.
Furthermore, the term REI is often used in conjunction with Real Estate Development. This is another subcategory of REI, about the improvement of property for profit.
Here we look at the term REI in further detail, expanding on the real estate world. Asking whether real estate is worth investing in, we also offer a simple guide to getting started in REI.
What does REI stand for – beyond the acronym
Why Is Real Estate Referred to as an Investment?
Real estate is an investment when it generates income – that is, profit. This relates to money that’s generated to invest. It’s, therefore, different from that of property used as living residence.
Investing in real estate allows people to generate capital gains. This is due to their property value increasing over time. This comes in the form of ongoing rental income, which comes from the property’s tenants.
Some investors will buy multiple properties for real estate. These properties serve as several investments, bringing in many forms of income. Some will even invest in a property to improve on it. Then they’ll flip it for a higher sale price – thus making a profit in the process.
Furthermore, real estate is a more common and indeed popular form of investment. This means that more people have access to it than ever before. This is regardless of those newcomers to the market or those more experienced who make a living out of it. REI is also considered a safer option when compared to other investment types. This explains its increasing popularity.
Is Real Estate Worth the Investment?
Potential investors want to know whether real estate is worth their time, and of course, money?
The truth is real estate’s considered a good investment choice. That is, provided you’re ready to start investing in it wisely.
Most people prefer this method of investing because of the passive income generated. This income is also considered a steady source. REI is also believed to be one of the better choices for longer-term investments. This is only possible though if the property value increases over time.
For some people, investing in real estate is the first step toward building wealth.
Real estate can indeed pay off financially if you ensure that you have a clear path going into it. This means:
Paying for your investments with cash:
This is especially so when you start out as you do not want your property to become a financial burden. The idea is for it to generate and build wealth. It’s not to put you in a situation whereby you can’t afford your mortgage payments. This will, in turn, damage your credit, making it difficult to invest further down the line.
Some financial experts will recommend against borrowing to buy investments. So, make sure you can either pay in cash or at the very least, afford to pay your mortgage without relying on your rental income. Should there be a dry spell in finding people to rent your property, you’ll need to know you can manage the payments regardless.
Ensuring you can meet all the expenses required:
Before you make your final financial decision on REI, plan out all your expenses upfront. This means finding out beforehand what taxes, utilities, and upkeep costs are. You’ll also need to factor in potential repairs, fees, and extra costs that may arise during the process.
For this reason, many investors like to have what’s known as a sinking fund to start. This involves a set amount of money put aside to use for such expenses. Determine the amount you’ll need to place into a sinking food at the very beginning. This ensures you won’t have to access an emergency fund. At worst, neither will you have to revert to your savings account should any other costs arise here.
Researching your intended property carefully:
With REI, it’s crucial to look forward and consider any potential factors. These are those issues that may influence the value of your intended property. This means researching that land deed with a fine tooth-comb! Issues such as potential new roads can affect property value later.
So, it pays to be one step ahead before making the final investment. Investing is a balance between risk and reward. But, the more you can foresee, the more scope you have to act. This is crucial before making those all-important financial decisions.
Starting out small:
One of the best pieces of advice when starting out in REI is to begin purchasing a smaller property. This allows you to dip your toes in the water and get a feel for the whole concept of realty. Once you’re comfortable with your investment, you can make payments and meet expenses, developing confidence.
You’ll also gain vital first-hand investment knowledge. Some investors like to buy a first development whereby they too can live or rent within it. Then, when they know they can manage, they consider expanding their portfolio and managing more properties. When done well, the return for such investment is then greater as a result.
Is REI Safe?
With the ability to earn better returns on investments – comes the ultimate concept of safety. Unfortunately, no investment is 100%, especially those that offer better returns. Yet, the savvy and wise investor will understand such risks beforehand. They’ll, therefore, work to cut them as much as is possible.
But, when it comes to real estate, this is one investment that many agree will always be worth something. It’s also the place whereby the market’s considered steadier in general.
With many options available, real estate’s considered a wise choice. This is especially so for those first-time investors. It offers several options to reduce risk by diversifying the property portfolio. And, it’s made all the better by placing money into several real estate investments, rather than putting it into one.
Yet, once again, as with all risk, remaining safe here requires research beforehand. It’s also essential to take note of any hidden profits. These could very well eat into your finances if you’re not careful.
Finally, you’ll guard your personal finances better if you’re sure you’ve enough money to start investing with.
Simple Ways to Get Started in REI
With several primary ways of making money through REI, here are four to get you started:
1. Become the landlord of your property
Buy a property that you can rent out to receive regular income from.
2. Get involved in a real estate investment group
A hands-off approach, this is ideal for those looking to own a slice of the real estate market. But, it takes away the hassles of running it. This will provide an income alongside appreciation.
3. Try your hand at flipping
Otherwise known as real estate trading. Flipping is best suited to those with real estate experience. Here you’ll work in a shorter period. This can yield significant returns in shorter time frames.
4. Invest in REITs
These encourage exposure to real estate and a chance to build a portfolio, but not in the traditional way. REITs are more commonly known as Real Estate Investment Trusts. These just need investment capital to get started. They offer dividend-paying stocks in return on those longer-term leases that produce cash.
The Advantages of Investing in REI
There are many advantages for those deciding to invest in real estate. A few include:
- Real estate is the more accessible of investments
- REI is easier to understand
- It’s considered a passive income
- It’s an avenue to help you build wealth
- REI is more controllable and thus improvable
- Real estate investment portfolios cope well with inflation
The Disadvantages of Investing in REI
As with all investments and financial decisions, there are disadvantages to REI. These are something to be aware of before making any investment decisions:
- REI requires a lot of outlay initially
- Real estate naturally demands ongoing maintenance costs
- REI presents low liquidity as properties can’t be so quickly sold
- Some people believe REI creates significant liabilities. This is on financial and legal matters
When Done Properly Real Estate Can Offer Great Returns
Real Estate Investment’s considered the most accessible avenue when starting off in investing. It also allows and indeed encourages more people to access this financial avenue. That is when compared to many other investment types. Ultimately, the return derived from real estate all depends on your commitment.
This involves as much effort and knowledge you’re prepared to put into your ventures. But, as an industry that continues to thrive, REI is certainly worth considering further.