A lot of people say that they want to invest in real estate, but only a few actually follow through with the necessary steps to learn how to become a real estate investor. Buying and owning real estate is an investment strategy that can be both satisfying and lucrative. Unlike stock and bond investors, prospective real estate owners can use leverage to buy a property by paying a portion of the total cost upfront, then paying off the balance, plus interest, over time.
Below Are 5 Simple Ways to Invest in Real Estate:
Rental Properties
Owning rental properties can be a great opportunity for individuals who have do-it-yourself (DIY) renovation skills and the patience to manage tenants. However, this strategy does require substantial capital to finance upfront maintenance costs and to cover vacant months.
Pros:
- Provides regular income and properties can appreciate.
- Maximizes capital through leverage.
- Many tax-deductible associated expenses.
- Hire a property management company to take on the day-to-day responsibilities.
Cons:
- Managing tenants can be tedious.
- Potentially damage property from tenants.
- Reduced income from potential vacancies.
Real Estate Investment Groups (REIGs)
Real estate investment groups (REIGs) are ideal for people who want to own rental real estate without the hassles of running it. Investing in REIGs requires a capital cushion and access to financing. REIGs are like small mutual funds that invest in rental properties. In a typical real estate investment group, a company buys or builds a set of apartment blocks or condos, then allows investors to purchase them through the company, thereby joining the group. The company or group then takes part of the monthly rent in exchange for its management task.
Pros:
- More hands-off than directly owning rentals.
- Provides income and appreciation.
Cons:
- Vacancy risks.
- Fees similar to those associated with mutual funds.
- Susceptible to unscrupulous managers.
House Flipping
House flipping is for people with significant experience in real estate valuation, marketing, and renovation. House flipping requires capital and the ability to do, or oversee, repairs as needed. There is another kind of flipper who makes money by buying reasonably priced properties and adding value by renovating them. This can be a longer-term investment, wherein investors can only afford to take on one or two properties at a time.
Pros:
- Ties up capital for a shorter time period.
- Can offer quick returns.
Cons:
- Requires a deeper market knowledge.
- Hot markets cooling unexpectedly.
Real Estate Investment Trusts (REITs)
A real estate investment trust (REIT) is best for investors who want portfolio exposure to real estate without a traditional real estate transaction. A REIT is created when a corporation (or trust) uses investors’ money to purchase and operate income properties. REITs are bought and sold on major exchanges, like any other stock.
Pros:
- Essentially dividend-paying stocks.
- Core holdings tend to be long-term, cash-producing leases.
Cons:
- Leverage associated with traditional rental real estate does not apply.
Online Real Estate Platforms
Real estate investing platforms are for those who want to join others in investing in a bigger commercial or residential deal. The investment is made via online real estate platforms, which are also known as real estate crowdfunding. This still requires investing capital, although less than what’s required to purchase properties outright. Online platforms connect investors who are looking to finance projects with real estate developers. In some cases, you can diversify your investments with not much money.
Pros:
- Can invest in single projects or a portfolio of projects.
- Geographic diversification
Cons:
- Tend to be illiquid ( or not easily converted into cash ) with lockup periods.
- Management fees.
How to Become a Real Estate Investor?
A successful real estate investor doesn’t necessarily need to have a background in the real estate business or in property management. However, you do need to decide what you are hoping to get out of the whole process. Do you want your role to be more passive or active? An active investment strategy includes things like buying and selling properties, finding your own rental properties, and fixing and flipping. A passive strategy will include investing in recurring cash flow streams and property appreciation over time.
What Is Direct vs Indirect Real Estate Investing?
Direct real estate investments involve actually owning and managing properties. Indirect real estate involves investing in pooled vehicles that own and manage properties, such as REITs or real estate crowdfunding.