Real estate is perhaps the smartest investment option open to you today. It offers less risk than playing the stock market, and can provide much higher profitability when done right. Of course, you still need to know how to get started. There are many, many ways to invest in real estate, and they’re not all the same. Some offer low risk and high rewards, but others are the converse. Let’s take a look at five of the simplest and easiest ways to invest in real estate.
- Buy a Rental Property
One of the most basic ways to get into real estate investing is with a rental property. This might be a single-family home that you’ve purchased with the intent to rent it out or it could be a vacation home. It could even be a segmented off section of your own home that you rent out as an apartment. Rental properties offer a significant return in the right market and when handled properly.
Of course, that means you’re responsible for paying all the taxes, the loan payments, and for maintaining the property at all times, so there are a few headaches that you’ll need to deal with here. You can outsource some of those with a management firm, but that will cut into the amount of money you’re able to earn from the rental property. Most landlords who do this charge enough rent to cover the mortgage payments and taxes and bide their time until the mortgage is paid off. Then, all the rent becomes profit (minus whatever’s needed for insurance and maintenance, of course).
- Real Estate Investment Groups
If you’re not that interested in rental properties, you might consider joining a real estate investment group. Think of these groups as the real estate equivalent of a mutual fund. They invest in rental properties in the US and often around the world, but with a focus more on condo properties and multifamily buildings. You can invest enough to buy a single unit, or you can own several. However, you don’t have the hassles and headaches that come from being a landlord, as the group itself is responsible for handling maintenance, advertising, and tenants. Of course, that means you lose a little bit of your investment to the group – they take a cut of the rent each month to cover their costs.
- Buy and Sell (‘Wholesaling’)
If you’re interested in getting involved with real estate, but you don’t actually want to own any properties for the long term, then you can buy and sell. Essentially, it’s very similar to how day trading works, but instead of stocks, you’re trading real estate. You’ll scout around for the best deals, buy the property you want, and then sell it, all within a very short amount of time. Often, you’ll have a particular buyer in mind when you purchase the property so that you can offload it as quickly as possible. You might be more familiar with this process as “flipping”, but it’s not quite the same. Property traders rarely invest any time or money in fixing up a downtrodden home the way that flippers do. You’ll also need to be very familiar with the real estate market in the area and what types of homes are in high demand so that you can avoid duds that will simply sit in your inventory for months.
- Consider a REIT
If you’re not familiar with REITs, or real estate investment trusts, it might be time to learn a little something about them. These can be excellent options for anyone interested in making a sound real estate investment, but who don’t want to become a landlord, and for whom flipping or property trading holds no appeal. A REIT is basically a way for a company to obtain funding to buy and then operate properties. However, in order to qualify as a trust, the company has to pay out at least 90% of its profits in dividends to its investors. If it does not, it will lose its status as a trust.
- Real Estate Investment Funds
While it sounds similar to a REIT and a real estate investment group, real estate investment funds are a different creature altogether. Think of these as private lenders who offer property developers and business owners access to capital when a bank either will not or cannot lend to them. Private lenders have actually become the single largest collective force in the real estate funding sector, and banks now play a minor role. By investing in a real estate investment fund, you’re able to gain access to types of real estate generally not available to individuals, such as multifamily properties, commercial properties, industrial properties, and the like. You earn income on your investment each month, with some platforms offering returns of 8 percent paid monthly.
We’ve discussed several different ways to get into real estate investing, but they’re very different from one another. More and more, private investors are turning toward the final option – real estate investment funds. This allows them unprecedented freedom in terms of how they’ll invest their wealth, but it does not require them to become landlords in the traditional sense. Because you don’t actually own the property outright, you don’t have to worry about anything other than waiting for your monthly payment to arrive. With that being said, some investors might prefer to take several different approaches to maximize their ability to build wealth and further diversify their holdings.
Make careful choices, analyze the options available, and then choose the one that’s the best fit for your needs and the amount of money you have available to invest.
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