Top 3 Real Estate Investment Tips for Freelancers
The real estate market is one of the most popular investments for a lot of people. But is it possible for freelancers with variable cash flows to invest in real estate? It can be if you take these 3 tips into consideration:
1. Have your finances in order.
Before investing, you have to make sure you have a solid financial foundation.
With a freelancer’s irregular income, money management can be tough. You may be aware of your outflow of money through expenses, but not the inflows. That’s why freelancers need a well-devised plan. Here are some points to help you develop a sound financial plan:
Create other sources of income: With your freelance income being irregular, having a steady cash inflow becomes important. The second stream of income will provide stability to your life.
Get rid of debt: Prioritize eliminating your debt. Track your spending, and set up a budget. Develop a plan to pay off your debt, and you will save on interest in the long run.
Build your emergency fund: As freelancers with irregular income, you might need to double your emergency fund. Your emergency fund should cover expenses for a year. It should be available at the bank in the form of cash or near-cash. Apart from ordinary home costs, this will be useful in the event of an emergency. The fund will also assist you in keeping track of your spending and will help you avoid costly credit card and personal loan debt.
Insurance: Make sure you have both health and life insurance for yourself. This will help you in covering the hospital bills or in case of emergencies. The life insurance coverage should be 10 times that of your annual income. Health insurance also becomes important because you do not have an employer who provides for it.
2. Consider what type of investor you are
When you start to invest in any market, it is important that you determine your risk appetite — or how much investment risk you can handle. You need to consider these 3 questions:
How much investment risk can I take? If you want to achieve a certain amount of financial growth, you need to have financial and emotional tolerance for risk. If you are uncomfortable with market fluctuations, you might want to think about investing in vehicles that have lesser risk.
What is my investment goal? Looking into the bigger picture can help you decide which investment vehicles to put your money into.
What is my investment timeframe? If you are expecting returns in the short term, your risk appetite would be low, since your priority is capital preservation. On the other hand, if you’re planning to go the long-term route, then your risk appetite would need to be moderate to high, since you would be staying invested for quite a bit of time, you can afford to take a little bit of calculated risk.
Answering the 3 questions above can help you determine if you are a conservative, moderate, or aggressive investor.
BONUS TIP: Do not invest in an area that’s too risky for your level of comfort or financial capacity.
3. Consider your cash flow situation and how it relates to investing in real estate
If you have a low income, don’t invest in large-scale properties with multiple units because it will be difficult for your cash flow to keep up with the payments on such properties, as well as meet other responsibilities. There are opportunities available at a lower cost, such as pre-selling condominium units.
If you don’t have the time and resources to be hands-on, you can take real estate investing to the stock market through Real Estate Investment Trusts (REIT). REITs are great ways to invest in real estate without being actively involved. A REIT is essentially a company that invests in income-producing properties like shopping malls, office spaces, hospitals, or condominiums. REIT shares are traded on stock exchanges, meaning investors can instantly invest in a diverse portfolio of properties by simply placing an order.