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Have you ever found yourself thinking about real estate investment?
The practice of investing in real estate has been around since civilization began, and it’s one of the oldest ways to make investments.
Real estate, one of the five basic asset classes, is one of the most profitable and lucrative investments you can make. It’s good for your taxes, cash flow, profitability and diversification benefits. You will also discover that real estate offers many unique benefits that you can benefit from. As you continue to read this guide, you will learn the basics of how to invest in real estate and how you can acquire various real estate investments.
The first thing you need to know is: What is real estate investing?
What Is Real Estate Investing?
Real estate investing is a very extensive category that is compromised of earning money from the tangible property; it’s also centered around your financial activities, operation and your investments as a whole.
Here’s how it goes:
Real estate investing is all about cash flow; not from appreciation but rather from rents. It’s also when a landlord (investor) wants to acquire a specific piece of property such as farmland, land that has office buildings, and land that has houses and apartment complexes.
The landlord will then find someone who desires to invest in this land. This person is called a tenant. The tenant will then sign a contract that has specific terms. There are restrictions put in place in a lease contract or rental agreement based on local, state, and federal regulations and laws.
Even though real estate investing is very lucrative, it’s not for everyone. Above all, many people have made tons of money investing in real estate. If you want to expand and grow your income, here are 5 different ways you can invest in real estate.
House prices can fluctuate over time, which can make planning a home purchase a challenge. However, there is data that shows the most common price brackets of property purchases. In this chart showing 2020 NAR Trends data, you can see that the most common price bracket for home purchases is $200,000 to $250,000 at 15%. However, this is closely followed by the over $500,000 bracket at 13%. The least common price bracket is the $75,000 to $100,000 at 3% of property sales.
1. Buy A Rental Property
When people rent out the property that’s on your land, you will generate income and constant cash flow.
If you want to succeed in the rental business, you have to buy a house that has the same combined mortgage payment, home insurance payment, and property tax payment that is lower than the rental requirements of the property itself.
There are many ways you can do this:
You can buy land in a high-priced rental area, or you can make a huge down payment so your mortgage payment can be as low as possible. You'll have to deal with the different mortgage options that available and to understand which of them is better for you. Also, to find an appropriate mortgage lender and plan the financial consequences on your side
One disadvantage of owning rental property directly is that you usually will have to pay a lot of money upfront; make sure that you are confident that you'll receive a return on your investment before investing.
Another disservice of real estate is dealing with tenants. Make sure you evaluate every tenant before letting them live on your property. Learn from other people’s experiences with dealing with tenants. Having a firm backbone with your tenants is vital to order. if you are a soft person towards tenants, it may be best for you to hire a property management service to manage your rentals. Above all, time investment plays a key role.
To sum up:
Based on your connections, renting out your property can be very profitable. If you put the time in initially to find good land for a property, you can hire a property management service to handle the logistics (don't forget to check your credit score before). Overall, this is a great way to have semi-passive/residual income.
2. Crowd Funded Real Estate
Crowdfunded real estate is one of the newest ways to invest in real estate. This is where you can link up with other individuals to invest in a property together for commercial or residential use.
Here are two qualities of crowdfunded real estate:
1. Low minimums – depending on the services that you decide to use, you can make an investment of $1000 minimum and become a property owner.
2. You don’t have to be a certified investor – in previous years, you would have to be a certified investor; that requirement is done away with now.
If you want to expand your investments, without having a lot of money at one time, this can be profitable for you.
3. Commercial Real Estate Investing
This type of investment includes property such as large office buildings. These agreements are typically long-term.
An investment in commercial real estate typically requires a substantial sum of money, which is difficult for a single retail investor to offer. Real estate investment trusts (REITs) and fractional ownership are the most frequent ways to invest in commercial real estate (CRE).
By reducing the ticket size, this style of investment lowers the barrier to entry into CRE for retail investors. However, a smaller ticket size does not always imply a smart investment opportunity.
Investing in commercial real estate has a number of advantages over other types of investments:
- It is protected from market swings because it is real estate. It is a stable long-term investment option with a generally consistent rate of return.
- It has a lock-in period that protects your investment while guaranteeing returns.
- Any special purpose CRE in a strategic location can be a gold mine because it will be highly sought after by a particular section of renters, ensuring that the investment will continue to pay off as a passive income stream.
The cool thing is that there’s also a double-sided coin to this as well -when this type of investment is released to long-term tenants who rent at a high price, cash flow will continue even if the lease rates fall (if the tenant doesn’t go bankrupt). On the flip side, you will find your self-earning less because the lease rates haven't increased yet.
4. Real Estate Investment Trust (REIT)
Real estate has been around since ancient times; it’s no wonder how Wall Street is able to benefit from this as well. The theory has found a way to turn real estate into beneficial investment. Real estate investment trust, also known as REIT, occurs when a corporation or trust uses money from investors to manage income properties. You can also find this type of investment in the stock market. Also, some REIT can include some special investments that has lower competition in the market, such as to invest in land.
The good news:
In order for a corporation to keep this status, they have to invest 90% of profits that are taxed in the form of dividends. As a result, corporations with REIT status can avoid paying a corporate income tax. A regular company would have to pay this tax, along with having to decide if they want to distribute it after-tax profits and dividends.
5. A Real Estate Investment Group
Real estate investment groups (REIG) are similar to mutual funds for rental properties. If you don't want to be a landlord but you want to own property, this may be the best option for you. In an REIG, a company will buy or build apartment complexes or townhouses. Next investors will buy them through the company.
One investor can own a unit but the company who's over the investment group owns all of the units on the property. They take care of the maintenance of advertising and evaluating future tenants.
6. Flipping Houses
Flipping houses can be the most profitable, but it is also very risky to do. Since the value of properties is good right now, this would be the best time to start flipping homes. The process of flipping homes happens when you buy a house under market value and sell them at a higher price to receive a profit.
Let’s not forget:
In order to be successful in this line of work, you have to find good bargains and spend as little time as possible. The dream flip home would be one that you buy that needs very few repairs. You can then boost the appearance of the home and sell it for profit.
Keep in mind that when you flip homes, you may not sell as fast as you expect. You may not even see the return on investment you desire to make. This is why it is crucial for you to buy homes in good locations and pay attention to price and needs. If you find flippilending houses is a natural gift or talent, this would be profitable for you.
There are many things for you to invest in, but its best to do what feels good for you. Real estate is my passion but I know it’s not for everyone. There are many avenues to real estate if you decide that you want to dive off in this line of investment. Above all, do your research before investing in anything.