Guide to Investing in Real Estate Properties


You got countless ways to invest in properties. Maybe you will take out a home mortgage in order to construct a real estate empire spanning the whole nation. Sure, this isn’t as achievable for the majority of, we still have heaps of other opportunities. And they don’t all involve financing and maintenance of rentals! Here are 5 ways to add real estate exposure to your investing.

1. REITs

If you wish to invest straight away, with just a bit of cash, look no further than real estate investment trusts.

These are public firms raising funds via the selling of shares of stocks and the issuance of bonds. They then utilize the profits to buy and lease out property assets like malls, offices, apartments and warehouses. REITs need to pay out almost the total of their after-tax profits to investors in the form of dividends.

Property investment trusts deal with lots of problems that come with owning properties. Management deals with some of the nuances of owning and renting. This way, you can relax and collect dividends, which often climb up more than stock investments.

You are able to purchase and sell REIT stock shares in the marketplace through a brokering account, the same as any other public firm. This renders REITs the most liquid property investment out there. Moreover, you are able to purchase shares of exchange traded funds that own shares of lots of REITs/ New investors that don’t have lots of cash can invest in fractional shares of REIT exchange traded funds through a micro-investing application such as Stash, M1 Finance and Robinhood.

Private trusts of this kind also exist, but they are available just to accredited investors. They are also more difficult to resell fast. Bear in mind that lots of these dividends get taxed as usual income, instead of the bit of a lower, preferred rate you usually get from qualified dividends.

2. Property Crowdfunding Platforms

There are those who like a more hands-on method. Crowdfunding could just be the answer for them. Lots of the web-based platforms for crowdfunding real estate allow you to invest in particular properties that are in development, instead of big, generic portfolios.

Property crowdfunding platforms are pooling money from more than a few investors to fund development ventures. They typically ask of investors to invest in properties for longer timespans – five years or more. You may be in the position to access some of your capital before that, but this may incur some early withdrawal expenses and it boils down to the discretion of the platform.

Charges may be incurred. Watch out for fees and extra management expenses which may lessen your profits.

Bear in mind that you may not be eligible to take part in any of the online property platforms. The majority of them ask of a minimum investment, going from $500 to $25,000 and up. Some ask of you to be an accredited investor โ€” this means you have to have $1 million in assets other than your primary property, or you have income of over $200,000 annually.

Fundrise, Crowdstreet and DiversyFund, three popular platforms, provide a variety of options that depend on how much capital you need to invest, from property funds to individual property ventures.

3. Invest in Your Home

Primary residence is a very popular tool that people utilize for investing in properties. They take out a mortgage, meet the payments for each month and slowly work on the ownership of the asset. If demand in the local marketplace persist, they are able to profit on the equity when they decide to sell the house.

Median yearly profits are smaller than one would think, even though investing in your home can assist you in gradually building riches. From 1994 to 2019, houses jumped in worth by 3.9 percent yearly.

There are parts of the nation where home appreciation is bigger, but usually a home that’s a primary residence usually won’t see a sharp rise in value. This particularly goes if you factor in the expenses of maintenance repairs, insurance, real estate taxes and the interest you cash out for the mortgage.

Other property investments, like the aforementioned trusts, experienced median yearly profits as big as 11,28 percent โ€” even the basic S&P 500 exchange traded fund offered average yearly returns of approximately 10 percent over the long term.

We are not saying you shouldn’t purchase a primary residence or not consider it an investment. Government support for the mortgage marketplace usually, along with programs that aid first-time house purchasers, assist you in purchasing a residence for a substantially smaller price than you would usually come across when making these purchasing decisions.

4. Invest in Rentals

Rentals are a good way to go if you are aiming to commit for the long-run in the property marketplace. Rental properties provide a good cash flow and the chance of appreciation during a longer times-span. Although, rentals also require the most work.

There are a couple of key ways to profit from rentals:

  • Long-term rentals. These are usually made for renting for a minimum of a year. They should be a good provider of steady profits, although this also comes down to the renters. These rentals can be multiple-unit assets or single-family homes.
  • Short-term rentals. They are good for frequently rotating renters that stay for a few nights approximately. Think Airbnb. You can list a whole house or just an apartment or room when you’re away from your primary residence. You may invest and rent out a completely separate real estate asset for these purposes.

Although investing in properties with rental assets provides better chances for profit, it also asks for much greater involvement. You need to locate and approve renters, pay for ongoing maintenance, take care of the repairing, and handle with any other issues that may come about.

You can lower some of these problems by getting a real estate management firm, but this will reduce your profit. When it comes to financing rental assets, resources and low interest rates at the disposal of primary residences may not be on offer. This could make purchasing a rental more costly.

5. Invest in Flipping Real Estate

There are more ways of profiting from property investments. Purchasing and flipping assets is often a good method. Although, the same as with rentals, this requires time and money. Aside from renovating, you need to know how to correctly spot up-and-coming areas where you can sell such assets for a profit.

If your method of flipping houses deals with renovations and constructions, then you are dealing with additional risks and some unforeseen expenses. It’s not as simple as TV makes it look. Building permits are needed, remodeling expenses can go through the roof – particularity if contractors and other outsourced workforce is taken into account.

To lower the amount of effort involved in flipping assets, search for real estate that doesn’t require big renovations in expanding locations. This could be even more lucrative if you rent the asset while waiting for home values to go up. Bear in mind, the neighborhood you think it’s going to turn trendy may never catch on, leaving you with an asset that’s difficult to turn profitable.

Should I Invest in Properties?

Properties can provide strong profits in the long run that are not connected with the stock marketplace. Expenses and risks may run high when you invest in physical assets, which may render REIT’s the top pick for people with limited cash flows for investing and for those that aren’t searching for primary residences.

You need to be aware of the risk that arrives with flipping assets or renting physical property. You need a Plan B for such cases in order to back your capital. Properties can be very illiquid on the shorter term, so it needs a very hands-on approach. Financial advisors are here to assist you with making your first steps in property investing.