How To Invest in Real Estate
Introduction
When it comes to investing in real estate, there are several options, from taking out a mortgage to developing a property empire that spans the nation. Despite the fact that most of us can’t afford the latter, there are plenty of alternatives. The following are five methods for increasing your portfolio’s exposure to real estate.
1. Trusts for Real Estate Investment (REITs)
Real estate investment trusts (REITs) are a good option if you want to get into the real estate market quickly and with a small initial commitment.
Real estate assets such as retail malls, office buildings, apartment complexes, or warehouses are purchased or leased by public corporations that raise money by selling stock or bonds. Nearly all of REITs’ after-tax income must be distributed to shareholders in the form of dividends.
Real estate investment trusts remove the hassle of owning property. You don’t have to worry about the day-to-day operations of owning and renting out the property; management does it all for you. Also read about what is investment income.
It is possible to trade in REIT stock just like any other publicly traded firm. This makes REITs the most liquid form of real estate investing. Exchange traded funds (ETFs) can also be used to invest in a variety of REITs. Fractional shares in REIT ETFs may be purchased through investing apps like Stash, M1 Finance, and Robinhood by new investors with limited capital.
2. Real Estate Crowdfunding Platforms
Crowdfunding platforms for real estate investing are a good option for investors that like to be more involved in the process. Platforms for real estate crowdfunding collect money from a wide range of investors and use it to support construction projects. For the most part, they demand long-term investments in real estate, sometimes for five years or more.
Depending on the platform, you may be allowed to withdraw part of your funds earlier; although this is at the company’s exclusive discretion. Depending on the platform, fees may be imposed. Keep an eye out for additional fees and administrative expenditures, which might reduce your returns.
Keep in mind that not all online real estate sites will accept your application. Investments often range from $500 to $25,000 or higher. Some demand that you be an accredited investor; which means that you have assets in excess of $1 million or income more than $200,000 per year.
A wide range of real estate crowdfunding investment possibilities are available on Fundraise; Crowdstreet, and DiversyFund, three of the most popular platforms for real estate investors.
3. Invest in Your Home
In terms of real estate investments, most people focus on their primary houses. You take out a loan, pay it back every month, and eventually you buy your house. You may be able to cash in on your home’s equity if you’re lucky and the market is hot in your area. Over time, owning property may help you generate wealth.
There are places of the country where home appreciation is higher, but on average, the house you reside in is unlikely to expand in value considerably, especially when expenditures such as upkeep and repairs, insurance, property taxes, and the interest you pay on your mortgage are taken into the equation.
This is not to argue that purchasing a property as an investment is a bad idea. It is feasible to acquire a home for a significantly cheaper price when the mortgage market is supported by the government in general, as well as through initiatives that assist first-time homebuyers.
4. Make Rental Property Investments
Consider owning rental homes if you want to make a significant investment in real estate. Rentals can provide passive income flow and the potential for long-term gain; but they are one of the most cash-intensive ways to invest in real estate.
Rental property income can be generated in two ways:
- Renting an apartment for an extended period of time; For the most part, these homes are meant to be rented out for at least a year, which in theory provides a stable monthly revenue flow. You may own a multi-unit property or a single-family house and rent it out to others.
- Rentals for a short time: These homes are geared at short-term tenants, like Airbnb, who may only be staying for one night at a time. If you’re going to be gone for an extended period of time, you may want to consider renting out your entire house or apartment, or you may want to buy a separate property just for this purpose.
In order to reap the benefits of investing in rental homes; you’ll need to put in a lot more time and effort. There are a lot of responsibilities that come with renting out a property; including screening renters, maintaining the property, and dealing with any issues that may emerge.
Hiring a property management company can alleviate some of these concerns, but the profits you receive will be reduced as a result.
5. Flipping Houses as a Real Estate Investment Strategy
In order to flip a house, you must be willing to take on more risk and pay a lot of money up front. Remodeling prices may be greater than you think if you employ contractors or outsource additional work. You’ll need building permits for changes.
Thus, when flipping houses, seek properties that don’t require extensive improvements in neighborhoods that are on the rise. If you rent out the property while you wait for the value of your home to grow, you may make even more money. Keep in mind that the neighborhood you believe will become popular may never catch on; leaving you with a house that is difficult to recoup your investment on, so, be cautious.
Real Estate Investing: Is it a Good Idea?
Investments in real estate can provide long-term gains that aren’t tied with the stock market’s movement. REITs, on the other hand, may be a better option for people with limited funds or who aren’t searching for a primary residence to invest in physical property.
Be mindful of the dangers you’re incurring and devise a strategy for recouping your investment if you decide to invest in rental properties or begin flipping houses. Keep in mind that real estate can be a significant financial commitment because of its short-term illiquidity. Speak with a financial advisor if you have any questions about how to begin investing in real estate.
