Investing is a fantastic way to take charge of your financial security. There are numerous ways to invest today including stocks, bonds, funds, trusts, and real estate. When it comes to investing, it can get pretty overwhelming to know if you should invest, when you should invest, what you should invest in, and how to keep track of your investments.
A great option to expand your portfolio is real estate. Different types of real estate investment opportunities allow you to decide how involved with the process you want to be. They also allow you to decide how much you want to invest in any one opportunity. In this article, we take you through 5 simple ways on how to get started in real estate investing.
1. Rental Properties
Typically, one of the first things that come to mind when you think of real estate investing is buying a property and renting it out. Rental properties are a great option for beginners. They are especially great to invest in if you know your way around a toolbox and can manage tenants. By managing rental properties, you will quickly learn about the real estate industry. You will also gain experience which can be applied to other ventures.
If you’d rather leave the fixing and managing to someone else, you can hire contractors and a property manager to do the legwork for you. Either way, be sure the amount you are charging for rent is more than the total monthly expenses. This is so you can maximize your return and ensure steady cash flow.
2. REIT (Real Estate Investment Trusts)
A REIT allows you to invest in real estate without having to physically buy any property. REITs function like mutual funds and trade like stocks. This allows you to have real estate in your portfolio without the full exposure of a traditional real estate investment.
Similar to a mutual fund, REITs are typically companies that own commercial real estate such as office and retail spaces, hotels, and apartments. REITS accumulate a pool of money from investors looking to diversify their real estate portfolio. Revenue is generated from several streams such as rent, property leases, fees, interest on mortgages, and underlying assets.
Similar to stocks, shares of REIT and bought and sold through a stockbroker. They are also traded publicly on the stock exchange in an initial public offering (IPO). This option provides consistent long-term payout through dividends, but may not give you the higher percentage return you’re looking for.
3. Real Estate Crowdfunding and Syndication
Another option for investing in real estate without the hassle of buying, selling, or managing is real estate crowdfunding. In real estate crowdfunding, investors pool money together and invest in properties collectively and share the profits.
The more people that contribute to the investment, the lower the minimum investment price is per person. This allows small and medium investors to go for investments they would not be able to if they were on their own.
Selecting the right people to partner with can be quite the challenge. That’s where real estate syndication may be a better fit. Real estate syndication is similar to crowdfunding with the difference being that with syndication there is more transparency about the sponsor and the properties available to invest in. Additionally, real estate syndication tends to be more advantageous from a tax perspective.
When it comes to real estate syndication, the sponsor typically owns the responsibility of buying, developing, selling, and managing investments and properties. As an example, Gatsby Investment, a real estate syndication firm based in Los Angeles provides the opportunity for investors to grow their money without the hassle of buying, building, renovating, renting, selling, or managing properties.
4. House Flips
If you are the hands-on type that knows your way around the tool belt, house flipping may be for you. You start by investing in an underpriced home. Then you renovate it as quickly as possible without going over budget. Last, you sell for a profit.
House flipping is known for being one of the riskier investment options. This is due to estimating the costs of repairs and the length of time you spend renovating/holding the property before turning a profit.
However, if you have the time, capital, and can find good contractors to help estimate all expenses for the property and assist in helping to manage the project, the experience can be quite rewarding.
5. Short Term Rentals: Renting a Room/Airbnb
Finally, if you have an extra room to spare, you can rent part of your home through online lodging marketplaces like Airbnb. A less committal investing option, renting out a room is good if you wanted to dip your toe in real estate.
Renting out a room provides the opportunity to have a stream of income without taking on a long-term tenant. If you use a platform like Airbnb, your guests will be screened. This provides more peace of mind as to who you are letting in your home. Airbnb also provides protection against damages in the event they occur.
Renting a room is a more accessible way to be involved in real estate. So, if you have a spare room, have a knack for hosting, and would like to make some extra cash renting a room is definitely one to consider.
Each of these five investments would be a suitable option to kick off your portfolio and get you in the world of real estate. Like any investment, the best real estate investments will be the ones that best serve your current situation and needs. Be sure to consider how much time and capital you are willing to invest in an opportunity. As well as, if you want to be the one dealing with inevitable household issues. If you want to be involved in the whole process from start to finish, rental properties and house flips are a great way to go. However, if home repairs are not your forte, REITs, real estate crowdfunding and real estate syndication are your best investment options.