4 Simple Ways to Invest in Real Estate
Real estate can be a lucrative long-term investment that can be an excellent source of income. The first thing that often comes to mind when someone thinks about investing in real estate is buying rental property, and the idea of being a landlord is not something many people want to do. Fortunately, there are other options available if managing tenants is not for you. These are some simple ways to invest in real estate to help get you started.
Rental property is an easy way to invest in real estate if you have the patience to manage tenants and some solid DIY and renovation skills. There are a few ways you can go about being a landlord. The first is buying a multi-family unit and renting out the apartments to different tenants. If you want to start small, you can purchase a single home to rent out. You can also purchase a rental property, live on-site, and rent out the other units or rooms to tenants.
To succeed as a landlord, you will need to keep the property in good condition and be available when your tenants need something or hire a property management company. This can be a lucrative endeavor, especially once the mortgage is paid off.
This can be a challenging investment option though since you have to manage your tenants. You can have months where a tenant does not pay the rent, and the eviction process takes time before you can get them out of there. You will also need to be prepared for sob stories from potential tenants who are late on their rent, so you will need to be prepared for that.
You may be stuck with costly repairs or renovations when tenants move out, especially if they did not take good care of the place. You also may have to deal with the phone ringing in the middle of the night because a pipe burst, and it needs to be handled now.
You have probably at least heard of the TV show about flipping houses. It looks simple enough, you buy the house, fix it up, and sell it for a profit. It is not quite as easy as HGTV made it look. First, you need capital well beyond the purchase price to invest, and it can take a lot of time to get the house ready to flip. Sometimes, even a highly profitable house can begin to feel like a money pit at some point. This real estate investment requires patience to see it through to the end.
When flipping a house, the key to making a decent profit is to buy low and find those hidden gems that require cosmetic repairs to make it worth enough to flip. If you find something that requires deeper repairs that will take more time and money to fix, you may lose money, especially since you are paying the mortgage on the property while it is being fixed up. The longer you hold onto the property, the less profit you may make from it.
If you have a decent amount of capital to invest and have the time required to see this through, this can be a lucrative investment; especially if you love hands-on DIY renovations. Keep in mind though, the renovations can cost much more than you think they will.
Real Estate Investment Groups
Real estate investment groups are set up like small mutual funds that invest in rental properties. These allow investors to have a portfolio in their real estate investments, where they can choose to invest in growth-oriented or income-oriented properties. Usually, the group will buy a set of apartment buildings and condos and investors can purchase them through the group. The investor can own individual units, but the group itself is in charge of managing the properties.
If you want to invest in rental real estate without having to run it, this is a good option for you; it is a more hands-off approach to real estate investment.
Real Estate Investment Trusts (REITs)
A real estate investment trust (REIT) is a company that owns or finances real estate, investing the majority of their money into the real estate and seeing a profitable return on that investment.
REITs can focus on commercial and residential properties; most focus on equity, but some trade in mortgage instead of property, and there are some that deal in both. They usually have high dividends, making them a good choice for a retirement investment.
Like stock, REITs are bought and sold through major exchanges. To maintain status as a REIT, a corporation has to pay out 90 percent of its taxable profits in dividends; this allows them the avoid paying corporate income taxes.