You Don’t Need to Buy Properties to Invest in Real Estate
Here are some easier, cheaper alternatives
Many people strongly believe that investing in real estate requires a grand amount of money. This is true in some cases, but there are other great alternatives if you just want to get your feet wet.
Real estate is a brilliant investment if you’d like a regular cash flow and it provides many tax benefits as well. If you want to know more about why investing in real estate is beneficial, check out this article:
In this article, I’m going to briefly go over the 4 best ways to invest in real estate. I’ll discuss rental properties and then show you some easier, cheaper alternatives.
Rental Properties
This is an investment that has stood the test of time. It’s been used over and over again to make landlords money. The way it works is a person buys a property and rents it out to a tenant. The responsibility of the landlord is to pay the mortgage, taxes, and maintenance costs of the property. The job of the tenant is to pay rent, usually monthly, for the duration of their stay at the property.
The landlord should charge enough rent so that they cover at least all property costs. They can charge more if they want so that they make a profit each month, but this the smartest way. Instead, most landlords charge just enough money to cover the property costs and then make their profit once they pay off the mortgage. Once the mortgage is paid off, the landlord now owns a very valuable asset.
At this point, the landlord may choose to reinvest earnings from the property into additional properties. If the landlord keeps up this strategy for a long time, he’ll eventually have an extensive set of properties. And since, according to the U.S. Census Bureau, the value of properties steadily increases over the years.
It’s important to note that this investment takes a lot of time and work to maintain. If you’re not a handyman, it may be better for you to hire a professional property manager to do the dirty work for you. This will decrease your earnings, but it will also save you some time.
REITs
In 1960, Congress passed the REIT Act to allow all investors the ability to invest in large-scale, income-producing real estate. A REIT, or real estate investment trust, is a company that owns income-producing real estate. Often, the companies also operate their properties. Depending on the REIT, you can dabble in many different types of commercial real estate, such as office buildings, apartments, hospitals, shopping centers, etc.
Earning money from REITs is comparative to earning money from stocks. Like stocks, you can sell your shares when the company’s value increases and receive dividends when the company profits. When REITs generate income, 90% of it gets distributed to the shareholders (usually on a yearly basis).
Keep in mind that all REITs are not created equal. Before investing in a REIT you should do some research to determine the equity and mortgage properties. Some are more stable than others, and they rarely sell as easily as stock.
Using platforms like Fundrise makes it easy to get started in the REIT game.
Real Estate Trading
Real estate trading is the act of buying and selling properties on the behalf of a consumer. You essentially act as the middleman. You first find a distressed seller and then search for an eager buyer. When you find both at the same time, you reduce your risk immensely and make a safe profit.
If you want to take a little more risk for a chance at a bigger profit, you can opt to buy the house yourself, renovate it, and then sell. Getting good at this skill has the potential to make real estate investors millions is a good option if you can afford the upfront investment.
The hard part about trading in real estate is finding the buyers and sellers. The best properties to use in this strategy are ones that are behind on their mortgage or vacant. Getting good at this skill is essential for successful real estate trading.
Real Estate Investment Groups
If you have a good amount of money to invest, joining a real estate investment group is the best option for you. The way it works is a group of individuals pool their money together to buy groups of properties and then selling them to investors who rent them out. These groups meet periodically to vote on investment transactions.
The group earns part of the investor’s income on the properties in exchange for finding tenants, providing maintenance, and handling other factors.
These groups are a good way for investors to work with people that have similar investment goals and strategies. In addition, the shared knowledge of the real estate industry is very helpful for everyone involved.
Are there any other ways of investing in real estate that we haven’t mentioned here? Let us know in the comment section below!
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