Are you interested in real estate investing?
Join the club!
Real estate is an excellent way to diversify your portfolio and provide a passive income stream (depending on the investment). But real estate may be an intimidating market sector for novice and seasoned investors as it creates the illusion that you need a ton of up-front cash to get started.
While that may be the case if your goal is flipping properties, there are so many ways to succeed in real estate beyond what you see on TV or read in headlines.
Here are five ways you can intentionally bring real estate into your portfolio.
1. Purchase Real Estate Investment Trusts (REITs)
You may be surprised to know that investing in real estate doesn’t mean you have to own physical property. Sounds a little backward, right? But Real Estate Investment Trusts (REITs) make it possible.
REITs are a way for investors to expose their portfolios to real estate without worrying about a mortgage. Here’s how it works: A corporation uses investors' funds to buy and operate income properties, like malls and commercial buildings. Because REITs tend to pay out high dividends, investors who don’t need the regular income can reinvest those dividends to grow their investment even more.
There are several ways you can invest in REITs, like purchasing public REIT shares on a stock exchange, buying shares of REIT mutual funds or exchange-traded funds, or obtaining the shares via the private sector.
Investing in REITs is a great way to diversify your portfolio outside of traditional stocks and bonds because of their solid dividends and long-term capital appreciation.
2. Buy Single/Multi-Family Property and Put on Your Landlord Hat
Rental properties can be a profitable passive income source in the right area. The perks of being a landlord include regular, consistent income. While consistent income is nice, there are disadvantages to being a landlord, including:
- Finding quality tenants
- Covering mortgage payments if the tenant fails to pay the rent
- Possible legal issues if a tenant turns out to be unexpectedly nasty
- Responsibility for routine maintenance—yes, the broken pipe at 3 AM is your responsibility!
- Upfront costs to purchase—down payment (which is often higher for non-primary residence properties), closing costs, renovations, etc.
- Miscellaneous costs for significant repairs and property taxes
Rental properties can be an excellent real estate investment if you’re prepared for it. You’ll make money from rental income and price appreciation if you end up selling the property for a profit later on. Those who have home repair skills will benefit the most from this approach since maintenance problems can be expensive unless you can do many of them yourself.
3. Look Into Real Estate Investing Groups (REIGs)
If you're interested in rental properties but don't want to shoulder the entire financial burden, Real Estate Investing Groups (REIGs) could be a great fit.
An REIG is a group of private investors who invest in real estate by bringing together funds, knowledge, and time to acquire properties that generate income.
Here’s how it works: A group of investors purchases living units (apartment, condo, blocks, etc.) from a building company. The company will act as an HOA for the real estate investors and assist with the maintenance of the property, advertising vacancies, interviewing tenants, and other miscellaneous tasks. In exchange, the building/buying company will take a percentage of the rent.
If the REIG you invest in is in good standing, you can put your mind at ease regarding risk and security. While there’s always a risk coming into a private agreement, an REIG can be a great way to start real estate investing.
4. Try Real Estate Crowdfunding
Real estate crowdfunding is meant for investing in larger commercial and residential properties via online platforms. These platforms offer investors an opportunity to invest small amounts of capital in large projects like shopping centers or condo buildings. Essentially, real estate crowdfunding connects developers and investors and pools investor money to fund a large project.
These online platforms allow you to invest in various projects but tend to be illiquid with lockup periods. Real estate crowdfunding can be a great option if investing across the country appeals to you.
5. Try Your Hand at Flipping Houses
First things first, flipping houses isn’t all glitzy and glamorous like HGTV shows. Odds are, you won’t have a million-dollar design budget, and demo days will be some of the hardest of your life. There's a lot of hard work and strategy needed to make flipping a house a success.
The first thing you need to prepare for is the upfront capital, like mortgage, interest, property taxes, renovation costs, and realtor fees—just to name a few. You’ll also need a deeper real estate market knowledge to know the right property to buy at the right time. This insider scoop will help you avoid unwanted problems and set you up for success. If you're talented in real estate valuation, house flipping could be an area for you to explore.
The main draw of flipping houses is quick returns. Typically, people who flip houses look to sell the properties they buy in less than six months. This means that you get quick returns, and the capital you invested isn’t tied up for as long.
If you want to start small, begin by buying averagely priced properties and adding value by renovating instead of completely gutting a home. As indicated above about buying property directly, those who have carpentry and similar home repair skills will benefit the most from this approach.
The Bottom Line for Real Estate Investing In 2022
Real estate investing can be an incredible opportunity for diversifying your portfolio and an excellent medium for passive income. There are several ways you can introduce yourself (and your wallet) to the world of real estate, and now, you might have a better idea of what your investment interests are.Not every option is suitable for every investor. We’d love to help you see if investing in real estate is a strong move for you. Get in touch with our team today to start making your investment dreams a reality.