Real estate investing will bring variety to your portfolio — and jumping on the bandwagon can be as simple as owning a mutual fund.
If you’ve ever had a landlord, you certainly don’t dream of being one: Avoiding calls of enormous bugs and overflowing toilets don’t appear to be the most attractive work.
But if well done, trading in real estate can be profitable, if not glamorous. This will further diversify the current investment portfolio you have and generate an external income source. So many of the best real estate transactions don’t need any showing up so from the owner.
The problem is that many potential owners do not know whether or how to invest in real estate. Here are some of the best ways to make real estate money, from low maintenance to high maintenance.
Best way to invest in real estate
1. Purchase REITs (real estate investment trusts)
REITs allows you to invest in real estate without actual real estate. They are also businesses that manage commercial real estate, such as office towers, shopping facilities, condos and hotels, similar to mutual funds. REITs continue to pay large dividends, making them a successful investment in retirement. Investors who do not need or want daily profits will immediately reinvest such dividends in order to further increase their investment.
Are REITs a good idea? They can be, but they can be varied and nuanced, too. Some trade on an exchange like a stock; some are not publicly listed. The type of REIT you buy can be a significant factor in the amount of risk you face, since non-traded REITs are not readily available and can be difficult to value. New investors will usually adhere to publicly traded REITs that you can buy from investment firms.
You’re going to use a brokerage account for that. If you don’t already have one, it takes less than 15 minutes to open one and numerous businesses do not need an initial investment (though the REIT itself is likely to have a minimum investment).
Below are the brokers that offer REITs and REIT mutual fund that are publicly traded.
|Promotion||Up to $600|
when you open an account
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2. Use the online real estate investment platform
If you’re acquainted with companies such as Prosper and LendingClub — which link borrowers to investors willing to lend them money for a range of personal needs, such as weddings or home renovations — you’ll understand online real estate investment.
These platforms connect real estate developers to investors who want to fund developments, either by debt or equity. Investors expect to earn monthly or quarterly dividends in return for taking a large amount of money and charging a network fee. Like other real estate transactions, these are speculative and illiquid — you can’t quickly unload the way you would trade the stock.
The trouble is, you may need the investment to make the work. Many of these websites are available only to qualified investors, identified by the Securities and Exchange Commission as individuals who have received income of more than $200,000 ($300,000 with a spouse) in either the last two years or who have a net income of $1 million or more, not having a primary residence. Alternatives for those who can not fulfill this criteria include Fundrise and RealtyMogul.
*other fees may apply
*other fees apply
|0.50 to 2.5%|
*other fees apply
3. Think about investments in rental properties
Tiffany Alexy didn’t plan to become a real estate developer when she purchased her first rental property at the age of 21. Then a senior college in Raleigh, North Carolina, she decided to attend high school locally and felt buying would be easier than renting.
She said that she went to Craigslist and found a four-bedroom, four-bathroom condo that was built in a student-house theme. She purchased it, lived in one bedroom, and rented out the remaining three.
The setup covered all of her costs and pulled in an additional $100 a month in cash — far from a graduate student shift, and enough for Alexy to catch the real estate bug. Now at the age of 27, she has five rentals and is the broker and owner of the Alexy Realty Group in Raleigh.
Alexy entered the market using a technique often referred to as house hacking, a term invented by BiggerPockets, an online platform for real estate investors. This simply means that you are occupying your investment house, either by renting out spaces, like Alexy did, or by renting out units in a multi-unit apartment. David Meyer, vice president of development and on-site marketing, says house hacking helps investors to buy properties of up to four units and still apply for a residential loan.
Naturally, you can even purchase and rent an whole investment house. Choose one with gross costs that are smaller than the sum you will spend in leases. If you don’t want to be the guy who turns up with a toolbelt to patch a leak — or even the one who calls the handyman — you’ll need to pay for the property manager.
Meyer said that if you handle it yourself, you’ll know a lot about the industry, and if you purchase potential property in the future, you’ll have more experience.
4. Consider flipping investment properties
This is HGTV comes to life: you invest in an underpriced home in need of a little care, renovate it as quickly as possible, and then resell it for income. Called house flipping, the technique is a little tougher than it seems on Television.
There is a greater aspect of difficulty, since so much of the calculation behind flipping requires a very precise estimation of how much the fix is going to cost, which is not an easy thing to do, according to Meyer.
Suggestion: Consider an accomplished partner. You may have money or resources to spend, but you need a contractor that is excellent at forecasting costs or running a job,” he says.
The other drawback of flipping is that the longer you own the house, the less money you make as you pay the mortgage without any income. You will lower the chance by staying in the house while you repair it. It fits as long as the changes are cosmetic and you don’t mind a little bit of chaos.
5. Rent out a room
At the end of the day, to dip the very tip of your toe in the real estate waters, you could rent a portion of your home from a platform like Airbnb. It’s house hacking for those wary of commitment: you don’t have to have a long-term tenant, prospective renters are at least somewhat pre-screened by Airbnb, and the company’s host warranty offers protection against losses.
Renting a space sounds a lot more open than a luxury real estate investment idea. When you have a spare room, you can rent it out.
For investment choices in general, the best investment in real estate is the one that better suits you, the owner. Consider how much time you’ve got, how much money you’re able to spend, and if you want to be the one who struggles with household problems as they pop up. If you don’t have the skills of DIY, try investing in real estate through a REIT or foregrounding site rather than personally in an asset.