If you’ve ever had a landlord, you’re unlikely to want to be one: Receiving calls about large insects and overflowing toilets does not appear to be the most appealing job.
However, real estate investing, when done well, can be rewarding, if not glamorous. It can assist in diversifying your current financial portfolio and provide an additional source of income. Additionally, many of the best real estate investments do not require you to attend to a tenant’s every whim.
The issue is that many new investors are unsure of where to invest in real estate or how to do so. The following are some of the greatest ways to earn money in real estate, ranging from low to high upkeep.
The best real estate investment strategies:
1. Invest in REITs (real estate investment trusts)
REITs enable you to invest in real estate without owning the actual property. They are frequently compared to mutual funds. They are businesses that own commercial real estates such as office buildings, retail spaces, apartments, and hotels. REITs typically provide substantial dividends, making them a popular retirement investment. Investors who do not require or desire monthly income might automatically reinvest their dividends to increase the value of their investment.
Our real estate investment trusts (REITs) smart investments? They may be, but they may also be diverse and intricate. Some are traded on an exchange, similar to stocks, while others are not. The type of REIT you purchase can have a significant impact on the level of risk you take on, as non-traded REITs are difficult to sell and may be difficult to evaluate. In general, new investors should stick to publicly traded REITs that may be purchased through brokerage firms.
You’ll need a brokerage account to do so. If you do not already have one, it takes less than 15 minutes to open one and many companies demand no initial expenditure (though the REIT itself will likely have an investment minimum)
2. Make use of a real estate investing tool available online.
If you’re familiar with organizations like Prosper and LendingClub — which connect borrowers with investors eager to lend them money for a variety of personal expenses such as a wedding or home remodeling — you’ll understand online real estate investing.
These platforms connect developers with investors interested in financing projects with either debt or equity. Investors anticipate receiving monthly or quarterly payouts in exchange for taking on substantial risk and paying a platform charge. As is the case with many real estate investments, these are speculative and illiquid — they cannot be quickly liquidated in the same way that stocks can be traded.
The catch is that you may require money in order to earn money. Many of these platforms are only available to accredited investors, who are defined by the Securities and Exchange Commission as individuals who earned more than $200,000 ($300,000 with a spouse) in each of the preceding two years or who have a net worth of $1 million or more, excluding their primary residence. Fundraise and RealtyMogul are two alternatives for people who are unable to achieve that threshold.
3. Consider making an investment in rental homes.
When Tiffany Alexy purchased her first rental property at the age of 21, she had no intention of becoming a real estate investor. As a senior in college in Raleigh, North Carolina, she intended to attend graduate school locally and reasoned that purchasing would be preferable to rent.
“I searched Craigslist and discovered a four-bedroom, four-bathroom condo that had been converted into student accommodation. I purchased it, occupied one bedroom, and rented out the remaining three,” Alexy explains.
The arrangement met all of Alexy’s expenses and generated an additional $100 a month in cash — far from chump change for a graduate student, but sufficient to pique Alexy’s interest in real estate. Now 27, she owns five rental properties and works in Raleigh as a broker and owner of Alexy Realty Group.
Alexy joined the market through a tactic known as house hacking, a term coined by BiggerPockets, a real estate investing help website. It simply implies you’re renting out rooms in your investment home, as Alexy did, or renting out units in a multi-unit structure. According to David Meyer, the site’s vice president of growth and marketing, house hacking enables investors to purchase a home with up to four units while still qualifying for a residential loan.
Of course, you can also purchase a complete investment property and rent it out entirely. Locate one whose combined expenses are less than the rent you can ask. Additionally, if you do not wish to be the person who arrives with a toolbelt to fix a leak — or even the person who contacts that person — you will need to pay a property manager.
“If you manage it yourself, you’ll gain valuable knowledge about the industry, and if you purchase further properties, you’ll have more expertise,” Meyer explains.
4. Take into account the possibility of flipping investment properties.
This is HGTV in real life: you invest in a low-priced home in need of some TLC, renovate it on the cheap, and then resell it for a profit. The approach, dubbed house flipping, is a little more difficult than it appears on television.
“There is a greater element of danger because so much of the arithmetic involved in flipping requires an extremely accurate estimate of the cost of repairs, which is not easy to perform,” Meyer explains.
His recommendation: enlist the assistance of an experienced partner. “Perhaps you have funds or time to give, but you hire a contractor who is skilled at calculating costs or managing a project,” he explains.
The additional risk associated with flipping is that the longer you own the home, the less money you will earn because you would be paying a mortgage while receiving no revenue. You can mitigate this danger by living in the house while it is being repaired. This works as long as most of the updates are cosmetic in nature and you’re not bothered by a little dust.
5. Sublet a room
Finally, if you’re only dabbling in real estate, you may rent out a portion of your home through a site like Airbnb. It’s commitment-free house hacking: You’re not required to take on a long-term tenant, potential tenants are at least partially checked by Airbnb, and the company’s host guarantee protects you against damage.
Renting a place feels significantly more approachable than the esoteric concept of real estate investing. You can rent out a spare room if you have one.
As is the case with all investment decisions, the best real estate investments benefit you, the investor. Consider your available time, the amount of wealth you’re willing to commit, and whether you want to be the one to deal with household issues when they inevitably arise. If you lack DIY abilities, consider investing in real estate through a real estate investment trust (REIT) or a crowdsourcing platform rather than directly in a property.