Your next mission is to browse the available options for investing in real estate to determine which best suits your budget and lifestyle. Here are few ways you can start investing in real estate:
1. Purchasing Rental Properties
If you prefer a DIY approach, then buying rental properties can be the ideal opportunity for you. Even more so if you have renovation skills and possess the required patience for dealing with tenants.
That being said, this method entails you to have significant capital to be able to pay up-front for maintenance and make up for vacant months.
The advantages of owning rental properties include bringing in regular income, maximizing capital, and offering various tax-deductible costs.
The drawbacks include the hassle of managing tenants, the possibility of reduced income due to vacancies, and the potential damage of property by tenants.
2. Joining REIGs (Real Estate Investment Groups)
REIGs are small-scale mutual funds for investing in rental properties. In these groups, a company purchases or constructs condos or apartments, then makes them available for purchase by investors through the company, so the investors automatically become part of the group.
REIGs are a great option if you're interested in owning rental real estate but don't want to deal with the hassles of managing it. Such an investment requires you to have substantial capital with feasible access to funds.
As an individual investor, you're able to own one or more units of living space while the operating company collectively manages all of the investment group's units. This includes maintenance, ads for vacancies, and interviews with potential tenants.
The company charges you a percentage of your monthly rental income in exchange for supervising management tasks on your behalf.
Keep in mind that a standard lease in the case of a real estate investment group carries the name of the investor and there's a percentage of the rent pooled from all the units to cover occasional vacancies.
This means that even if your unit isn't rented, you'll still get a portion of your income. The pooled vacancy funds should be enough to make up for such costs as long as the vacancy rate doesn’t spike too much.
3. House Flipping
You may want to consider a real estate investing strategy referred to as "house flipping", but keep in mind that you need to be sufficiently experienced in aspects such as real estate marketing, renovation, and valuation. Additionally, house flipping demands capital power as well as being able to perform or supervise repairs if needed.
Many financial experts consider house flipping the "wild side" of investing in real estate. House flippers are different from buy-and-rent landlords just like day trading is distinct from buy-and-hold investors. The vast majority of real estate flippers aim to sell their purchased undervalued properties with profit in under 6 months.
As a rule of thumb, expert home flippers rarely invest in properties that require improvement. This way, the profit is as much as possible.
Another point worth noting is that property flippers who fail to swiftly sell their investments often run into financial trouble because they don't usually have enough uncommitted cash lying around to cover a long-term mortgage on a property.
That being said, some flippers opt for long-term investments by purchasing reasonably priced units and renovating them to increase their value.
4. Buying REITs (Real Estate Investment Trusts)
Buying REITs is an excellent choice if you're looking to achieve portfolio exposure to real estate investment without conventional transactions. A REIT is when an organization/trust purchases and manages income properties with investors’ money.
Just like other stocks, you buy and sell REITs on major exchanges.
Some characteristics of REITs include:
An obligatory 90% payout of its taxable profits as dividends to avoid corporate income tax.
Providing a regular income and the opportunity to enter nonresidential real estate investment.
Being very liquid since they're exchange-traded. This means that you can cash out your investment without the need for a realtor and a title transfer.
On a final note, there are 2 types of REITs — ones that own buildings known as equity REITs, and ones that fund real estate and are involved in mortgage-backed securities known as mortgage REITs. The former is the more traditional approach as it focuses on real estate ownership, while the latter focuses on the generated profit from real estate mortgage financing.
5. Using Online Real Estate Investing Platforms
Last but not least, you can check out online real estate investing websites and enter bigger residential or commercial deals. These platforms are also referred to as real estate crowdfunding.
This type of investing still calls for a sizable capital, but less than required for full-on buying properties.