Investing in real estate can be a rewarding experience when done correctly. It’s an effective way to earn extra income and diversify your investment portfolio. Unlike traditional investing, real estate allows investors to own properties by paying a percentage of the total cost first. Then completing the balance over time by paying interest. Read on to learn how to get started in real estate investing.
Once the transaction has been completed, the investor gets access to the property. There’s a whole host of things they could do at this point. But which is the best? That depends on several things, including your own personality.
If you plan to invest in real estate, here are four simple ways to get started:
1. Real Estate Crowdfunding
A way to start investing in real estate is crowdfunding. This kind of real estate investment makes fractional real estate investing easier, allowing investors to own portions of real estate property.
Real estate crowdfunding is ideal for investors who are interested in residential properties or large commercial buildings. With this type of investment, investors use real estate crowdfunding online platforms. These platforms link investors that want to finance projects alongside developers.
Although you need capital to participate in crowdfunding investments, the amount would be significantly lower than you’d need to buy the entire property. The beauty of crowdfunding is its flexibility. You can invest in a single project or multiple projects. You can also diversify your investments geographically. The main downside of real estate crowdfunding is that they lock your capital for extended periods. You’ll also be required to pay extra management fees.
2. Property Flipping
If you are interested in renovation, marketing, and valuation, you can start investing in real estate through property flipping. This type of investment involves buying an undervalued property at a low price. Then renovate it and sell it at a higher cost… quickly.
To invest in house flipping, you need to raise sufficient capital for repairs. You’ll also need the ability to oversee the work. The more work the property needs, the greater the opportunity for profit.
House flipping ties capital for a short period and offers quick returns to investors. However, you need to know about the real estate market to excel in this type of investment. First-time house flippers will need a great deal of expert real estate advice.
3. Rental Income
You can start real estate investing by owning rental houses or properties. This type of investment is ideal for investors who have renovation skills and are willing to manage tenants. The upside of investing in rental properties is that you don’t have to raise substantial capital to meet maintenance costs upfront or cover vacant months.
Rental properties benefit you in two primary ways. First, the real estate investor will receive regular income from the tenant. Second, the value of the property will likely increase over time. This is the path that most wealthy entrepreneurs used to get their start.
Even so, managing tenants can be challenging. Chances of tenants damaging your property are high, and your rental income may dip anytime the property stays vacant.
4. Investment Trusts
One of the easiest ways to get started in real estate investing is via a real estate investment trust (REIT). REITs are companies or trusts that use investor funds to buy and manage income properties. You can purchase REITs like ordinary stocks on major exchanges.
Corporates that sell REITs pay at least 90% of their taxable profit as dividends to maintain REIT status and avoid corporate income tax. REITs provide solid investments for new real estate investors who want regular income because they work like ordinary stocks that pay regular dividends.
In addition, REITs offer new investors entry to non-residential investors like office buildings and malls that may not be possible for individual investors to buy directly. Trusts are traded on exchanges. This means they’re highly liquid. It alleviates the need for real estate agents or title transfer cash-out investments. The downside with this mode of real estate investing is that you may not be able to leverage conventional real estate.
Real estate provides lucrative opportunities for investors seeking to boost their investment portfolios. But like other investments, the best way to invest in real estate is to find something that serves your investment goals.
When choosing real estate investments, consider the amount of capital you want to invest, the time you have, and whether you’re willing to deal directly with issues that arise from the investment. You should consider all four options before jumping in. Real estate investing can be highly lucrative but not everyone succeeds.