You work hard and want to make the most of the income you earn. Sure, you could keep all your money in a checking or savings account. But the interest you’d earn would be paltry. To save for retirement and planned goals, like buying a house, you need to grow your money. It’s time to consider investing.
There are many types of investing, from investment funds discussed in this business piece to real estate investments.
If you’re reading this, you’re probably interested in learning more about real estate investing. Taking your first steps toward investing in real estate can be a daunting prospect. Not only is it a risky business involving your own money, but you also need to choose the right form of investment. From wholesale real estate to rentals or real estate investment trusts, the options can be overwhelming.
Thinking about taking the plunge into real estate investing but not sure where to begin? In this article, we’ll cover five different methods of real estate investing. We’ll look at the risk of each method and whether they could be right for you.
Real estate wholesale
One of the best ways to begin investing in real estate is to use a real estate wholesaler. This method brings a lower risk than competing methods because real estate wholesalers perform the necessary research for you.
Real estate wholesalers basically act as the middle ground between property vendors and potential investors seeking new opportunities. When a vendor sells a property, the wholesaler buys the agreement and then transfers that contract to an investor or other buyer.
They will charge a transfer fee which is usually a portion of the overall cost of the property. You don’t need a lot of capital to take the plunge into real estate wholesale, but the process can teach you a lot.
Because wholesale investment properties have been vetted by professional wholesalers, you’re likely to secure a property with high investment potential. This could be wholesale houses and even commercial wholesale properties.
Browse local wholesalers with wholesale real estate for sale to find your first or next investment.
Real estate investment trusts (REITs)
Another low-risk method of real estate investment, especially for novices, is signing up to a real estate investment trust. These trusts are public businesses that accumulate capital to then buy and lease commercial real estate. These could include apartment complexes, office blocks, shops and malls, or warehouses.
Like real estate wholesale, someone else takes care of the market research needed to select the property investment. REITs will also deal with the running of the properties. All they need is your funds, which you deposit by buying stocks, to finance the portfolio. Choose the right REIT for your investment goals.
As the property makes profit, you’ll be rewarded for your participation through dividends. This presents lower risk and higher guaranteed returns than doing all the work yourself. REITs are seen as highly liquid compared to other investment methods.
This means that it is much easier to reclaim your cash once you’ve made a profit, making REITs a good initial step on the real estate investment ladder. This route is also a popular option for those who want to invest during their retirement.
If you’ve already got some investment capital in your pocket, then real estate crowdfunding could be an intriguing path. Crowdfunding aims to help developers to find a group of investors willing to fund their next developments.
Real estate crowdfunding involves more risk as you may lose out if the developer runs into complications. However, the rewards can be enticing. Imagine you funded the construction of a new suburb in an ideal future location. Your returns could be great.
Most crowdfunding real estate platforms like Crowdstreet or Fundrise will charge a usage fee. Minimum amounts of investment may also be required, and some platforms will only approve members who are accredited investors.
House-hacking and Rentals
It may sound devious, but house-hacking is actually very common. Essentially house-hacking means that you rent out a part of the property that you’re living in. This can be as simple as leasing a spare room as an Airbnb. It’s a relatively low-risk form of rental investment.
If you have the capital, you can also purchase more accommodation outright to lease out. You’ll generate a steady profit from your tenants, whether you offer short or long term rental contracts. Possessing traditional rental homes is a big step and demands a lot of commitment.
There is also risk involved. You’ll have to contend with the duties of being a landlord. That means that you’re the first port of call if there’s a water leak or other fault. This can be expensive if you have to call out professional workmen to fix the issue.
Make sure that expenses like bills and maintenance work are covered by the amount you charge your tenants. This will protect you from being put out of pocket if something goes wrong.
You’ll also have to supervise your tenants. If they struggle to pay their rent or if they cause problems, that’s something that you’ll have to navigate. Consider if the role of a landlord is what you want, as it can be overwhelming for some people.
The most famous form of investing in real estate is probably property flipping. We’ve all seen renovation shows on TV. A hot-shot developer buys a rundown property, turns it into a dream home, and makes a huge profit.
Unfortunately it’s rarely that easy. Picking your target is crucial. You need to make sure that the cost of renovation work can be covered by your profit. Unexpected issues could crop up, such as needing to rewire the whole house. Unless you have the expertise to do it yourself, this can incur huge labor costs.
Identifying neighborhoods that could develop into popular areas is a good tactic. When choosing the right property, an experienced real estate wholesaler is a huge asset that helps to maximize your profit.
Beware of mortgage repayments as well. If you need a mortgage to finance the purchase, it will sap your profits if you spend too long renovating. Estimating the time needed accurately can help save you unnecessary costs and help you flip the property faster.
We’ve covered five potential routes into real estate investment. These range from low-risk paths such as using real estate wholesalers to more intensive commitments such as renting property out. Choosing a method that suits your goals could dictate success or failure.