4 Effective Ways to Get Started With Real Estate Investing
There are essentially four practical ways to get started with real estate investing. You can invest in rental properties using a strategy known as house hacking. You can invest in REIT, which works like a mutual fund. You can invest in an online real estate platform if you are an investor accredited by SEC, or you can flip houses.
Invest in rental properties
You can become a property market investor using the strategy known as house hacking. It means you buy a multiunit investment property, occupy a unit, and rent out the others. The rents you collect can go towards the mortgage payments, and if you have obtained a reasonable interest rate, you make money with the difference.
You don’t have to be the person to come with a toolkit to fix a leaking roof. Lease it out through Evernest, Nuvill and APM, which are well-known rental companies in Colorado Springs. Their real estate experts can manage it for you. This arrangement can free you to do other productive things.
House hacking allows people to buy a property of four units and qualify for a house loan. Hacking also gives you the option to buy and rent an entire property. The key lies in finding a deal with a higher rent than the combined expenses. That way, you can make a profit monthly after all fees are paid.
You can learn a lot about the property market if you manage it yourself, but it will be a very hands-on approach, which will not give you enough time to do anything else. But with the experience you gain, you can get into the property market and make a fortune.
Real estate investment trust
With a real estate investment trust or REIT, as it is popularly known, you can invest in the property market without any physical assets. To be a property investor, you do not need to own a physical asset. People often compare it to mutual funds. REITs own commercial properties such as retail spaces, office buildings, hotels, and apartments.
REITs pay very high dividends, making them a perfect retirement investment. Investors who reinvest those dividends further grow their investment. REITs can be a good investment, but they are complex and varied.
The REIT type you purchase would determine the risk factor. The non-traded ones can be difficult to value and sell. You can buy the exchange-traded investment from a brokerage firm by opening an account.
Opening a brokerage account takes 15 minutes. Many companies need no down payment. Another way is to buy a mutual fund that holds REIT shares and thus gain exposure to real estate investments. That is why REITs are generally compared to mutual funds to make sense of the complexity.
Online real estate platform
Online real estate investing platform connects property developers to affluent investors. These investors want to fund various projects, either using equity or debt. Investors take on the risk by requiring quarterly or monthly distributions in exchange. The platform makes money when the investors pay a fee for the connection.
Like many property investments, the dealings at the real estate platforms are illiquid and speculative, meaning you cannot quickly unload these investments. Its speculative nature makes it a high-risk investment strategy too. However, the rewards are very high. The premise behind these investments is that you require money to grow money.
Most of these investing platforms are only open to affluent investors accredited and defined by the SEC Securities and Exchange Commission. The investors of online investment platforms must have a net worth of more than $1 million minus the primary residence or have earned $200,000 in each of the last two years.
Real estate investment platforms are also called property crowdfunding firms. They have transformed the landscape of property investing. Although affluent investors once used it today, there are many alternatives for people who do not meet that requirement. Many crowdfunding investment platforms have lowered the barrier.
Flipping real estate properties
According to this real estate strategy, you buy an underpriced home that needs minor repair and maintenance and renovate it in a budget-friendly way. Then you sell it, and the difference between the sale price and the purchase price is your profit. Of course, you must factor in the expenses you made to redo the house.
House flipping is not as easy as it sounds. Risk is involved because it is not easy to calculate the cost of repairing the house. Getting an accurate estimate of the cost of repairs is always challenging.
The other factor is that you make less money the longer you hold it because you are paying a mortgage and spending money on repairs. No income and all expenses is never a good strategy. Perhaps you can fix the house while you live in it, lowering that risk.
The key lies in getting an experienced partner. If you have the capital and time to contribute towards house flipping, find a contractor good at managing such projects and estimating the expenses.
