Are you interested in investing in real estate, but aren’t quite sure how to get started?
Investing in real estate can be a great way to earn some extra income. Or, if you do it right, it can be a great way to earn all of your income. But, it’s also important to understand that investing in real estate comes with a lot of risks.
That’s why you really need to know what you’re doing before you get started. Otherwise, you could end up losing thousands of dollars.
Check out this real estate 101 guide to learn how to start investing in real estate.
Understand the Different Ways to Invest
It’s important to understand that there are several different ways you can invest in real estate. As a beginning investor, it’s best to choose one investment strategy and stick with it until you’ve mastered it.
Then, later on in your investment career, you can explore other investment strategies. Here are the different ways you can invest in real estate:
Rental Property
If you have a do-it-yourself attitude and renovation skills, owning a rental property may be the real estate investment strategy for you.
To execute this strategy, all you need to do is buy or build a property, find tenants, and then charge them rent. While the strategy is straightforward, the process can be a bit complicated, as there’s a lot of work involved when renting out property.
With this strategy, you’ll also need a lot of upfront capital to take care of maintenance costs and to cover the months in which your property is vacant.
The best thing about this real estate investment strategy is that it provides regular income, and there are a lot of tax-deductible associated expenses.
The downside to this strategy is that it can be a lot of work to manage your tenants, and there’s always the possibility that your tenants will cause severe damage to your property (of course, you can minimize this issue by thoroughly screening them).
Join a Real Estate Investment Group
Another solid way to invest in real estate is to join a real estate investment group. A real estate investment group, also known as an REIG, is like a small mutual fund that invests in different real estate properties.
If you want to invest in real estate but don’t want to deal with property upkeep, this may be the investment strategy for you. With an REIG, a company builds or buys a set of condos or apartment blocks.
Then, investors purchase these blocks through the companies, thereby joining the group. As a single investor, you can either own one or own multiple units in one of these blocks.
But, the company that operates the investment group collectively manages all of these units. They’re responsible for advertising vacancies, handling maintenance issues, and interviewing tenants.
In exchange for handling these maintenance tasks, the company takes a portion of the monthly rent. Typically, the REIG lease is in the name of the investor. And, all of the units pool a portion of the rent together to protect against the occasional vacancy.
As long as the vacancies aren’t too frequent, there should be enough money left over to cover other costs.
Flipping Houses
Thanks to shows like Flip or Flop, Masters of Flip, and Flip Wars, house flipping has become one of the most well-known real estate investment strategies.
House flipping involves buying a home below market value, renovating it, and then selling it for a profit. You can either sell it to families or those looking to make the residency their permanent home, other real estate investors, or cash buyers from places like We-Buy-Houses-For-Cash-in-Chicago.com.
House flipping takes a ton of expertise, as you’ll need to be an expert in marketing, renovation, and real estate valuation. You’ll also need a lot of startup capital to handle renovations and ongoing maintenance costs until the house sells (ie, mortgages, utilities, property taxes, homeowner’s insurance, etc.).
If you can’t flip the property in a quick manner, you may find yourself in financial trouble. But, if you know how to flip homes quickly, this can be a very lucrative way to make money and get a quick return on your investment.
If you have deep knowledge of the real estate market, this may be the real estate investment strategy for you.
Real Estate Investment Trust
A real estate investment trust, also known as an REIT, is for those who want portfolio exposure to real estate without dealing with traditional real estate transactions.
When a corporation or trust gets money from investors to purchase and operate properties, an REIT is formed. Just like any other type of stock, REITs are bought and sold on the major exchanges.
Often compared to mutual funds, these are companies that own commercial real estate properties such as retail spaces, office buildings, hotels, and apartments. REITs typically pay high dividends, which makes them a common investment strategy for retirement.
If you don’t need regular income, you can automatically reinvest the dividends you earn to further grow your investment. While REITs can be a good investment, they can also be complicated and varied.
The type of REIT you purchase can also play a huge role in how much risk you take on.
Real Estate 101: Are You Ready to Invest?
Now that you’ve read this real estate 101 guide, it’s time for you to decide which investment strategy is right for you. If you play the game right, you could make a lot of money through real estate investment.
Be sure to check back in with our blog for more real estate investment tips and tricks.
