Out of the many investment options that exist, plenty of people are drawn to real estate. Real estate investment proves to be one of the most rewarding ways to build wealth. And there is more than one way to invest in real estate.
So if that’s something that is of interest to you, here are the 4 ways to invest in real estate. With all that said, let’s start.
Become a Landlord
This is probably the most traditional method of investing in real estate. Becoming a landlord means buying land or property and leasing it to others. You can lease the whole land or property, or portions of it. Regardless, the whole purpose of becoming a landlord is to gain income passively each month or on a bi-weekly basis.
From the many options presented to you as a landlord, the soundest strategy is to simply buy the property and rent it as a whole. This could be residential or commercial property. Residential property includes houses, condos, apartments, etc, while commercial property can be any property used by businesses.
The way you make a profit through this strategy is by generating rental income. One thing we should mention is that you will also have to pay for the property. The way we overcome this issue is by asking for a higher rental payment than the mortgage payment.
As time goes on and your property increases in value, you can ask for much higher rent while mortgage payments stay the same. The profit is the difference between both payments, which you can pocket.
Other strategies also exist, such as house-hacking. This strategy means buying a whole building and using one of the units to live in while renting out the others. It should be noted that this strategy is risker and more challenging to overcome.
Another way to invest in the real estate market is by flipping houses. No doubt many of you have heard about it, but are you 100% sure what it is?
House flipping simply means buying property, renovating it, and reselling it for profit. It is a common strategy that millions of real estate investors practice. Over the years, this strategy has proven to be very effective. But flipping houses is easier said than done.
While it does look very easy, to flip a house you’ll need to be an expert in multiple areas. For starters, you have to identify and purchase low-cost but high-potential properties. Due to the high potential of these properties, you can turn a profit by renovating them and reselling them at a higher price.
It should be said that house flipping is very time-consuming, as you’ll need to also invest plenty of time and energy into renovating and remodeling the property to make it fit for sale. But other challenges also exist. For example, in many cases, you’ll need to successfully manage your budget without going over it. While this is impossible in many cases, it can be the difference between turning a profit and coming up even. Plenty of challenges and obstacles exist with this strategy, but if you do it right you’ll no doubt be making a successful investment.
Real Estate Investment Trusts
So far we’ve talked about ways that require you to purchase property. But even if bank loans are easily accessible to us in the absence of cash, some people simply lack the financial capacity to purchase property. This means that the previous two options aren’t available to them.
So what happens then? How does a person with limited financial capabilities invest in real estate? The answer, or one of the answers, to that question is in the form of real estate investment trusts or REITs.
REITs are huge companies that own many residential and commercial properties. The purpose of owning these properties is for the REIT to rent them. But considering that these companies actually need to buy the property first, funding comes in the form of investors. These investors can be multi-millions dollar hedge funds, or ordinary, everyday people.
By purchasing shares of REITs, you earn a proportional share of the income that that property or properties produce.
The reason why many prefer this type of real estate investment is that there is another way to make extra money. Since REITs are publicly traded companies, most of them also trade on public stock exchanges. So by investing your money in REITs, you’re not only earning a percentage of the income, but you’re also investing in the company itself. The more successful the company is the bigger returns and higher dividends you’ll be receiving.
Real Estate Crowdfunding
Real estate crowdfunding works similarly to REITs. The only difference is that you’ll be investing in private companies, as opposed to publicly. With this comes a considerable liquidation risk. Namely, since these companies are privately owned, it means there are no publicly traded securities such as stocks. Most real estate crowdfunding platforms recommend investors to consider their investment ass “tied-up over the long run”. This means that investors shouldn’t expect changes for the first five years.
Judging by all this, you have two main types of real estate investment options. You can invest by purchasing property and renting or flipping it, or you can invest in REITs and through crowdfunding. You will need to determine what type of strategy works best for you. Don’t make hasty mistakes and instead do your research on each individual one. If you’re serious about investing in real estate, it would be wise to also familiarize yourself with the potential risks involved.