Simple Ways for Beginners to Invest in Real Estate
Real estate investments are often perceived as glitzy and lucrative. While there is no doubt that it can be exciting and intimidating at the same time, real estate is a tricky field to navigate for newbies. It can help diversify one’s existing investment portfolio and serve as an additional stream of income. However, many new investors don’t know how or where to invest in real estate.
Buying and owning real estate is a great investment strategy that can be incredibly satisfying and profitable if done right. The best part about this type of investing is that almost anyone can do it if they are willing to put in the time and energy needed. Putting your shoulder to the wheel is the most difficult part, but one can build a great career and make some serious money by employing sound industry knowledge.
There is a flip side to this: you can also lose money if you don’t manage to make the right choices. Like anything else, investing in real estate investing comes with certain disadvantages as well. Success with real estate investments requires a clear understanding of what you’re getting into.
An excellent real estate investment has a strong chance of success, so you can earn a healthy return on your investment. If it involves a high level of risk, then it should be countered with a high potential reward. Choosing investments with a good track record won’t necessarily guarantee the same success, so one should be vigilant about making smart moves.
Having said that, real estate investing is much more manageable than you think. Here are some simple ways you can get started as a beginner:
Buy Real Estate Investment Trusts (REITs)
If you’re looking to test the waters of real estate, then REITs are an ideal option, as they provide market exposure without the costs and time committed to buying your property. REITs are companies that own and operate real estate ventures, much like mutual funds or exchange-traded funds. When investors buy a share of a REIT, they earn a proportionate share of the income generated by that asset.
Advantages of REIT
- REITs are traded on significant exchanges, so buying and selling are easy. Unlike some other types of investments, you can sell your shares anytime with REITs. Greater liquidity also makes it a better option.
- Since REITs come with a professional management team to monitor the property, it saves time and effort. Best of all, knowing that your investment is in safe and capable hands gives you peace of mind.
- REITs are far less risky when compared to investing in a rental property or flipping houses.
Online Real Estate Platforms
This is a strategy that helps enterprises to raise capital from investors or large groups. Essentially, these platforms help connect real estate developers with investors. The investment is made through online real estate platforms, also known as real estate crowdfunding. Like many other real estate investments, real estate investing platforms are illiquid and speculative, so you can’t unload them as you would with stock trading.
The downside is that it requires investing capital, and most of these platforms are open only to accredited investors. These are people who have made an income of $200,000 each year for the past two years or those who have a minimum net worth of $1 million.
Real Estate Limited Partnerships (RELP)
This gives investors a diversified portfolio of real estate opportunities and allows them to merge funds with other investors to lease, buy, develop, or sell properties that would be too expensive to manage independently.
RELPs are a type of private equity, so they’re not traded on public exchanges. Instead, they exist for a specified period of seven to twelve years. RELP has a general manager who takes care of the acquisition and liability and limited partners – passive investors who are protected from liabilities. In this type of partnership, multiple investors combine their resources to finish a deal they cannot afford or manage independently. This type of investment is more suitable for investors with high net worth. Generally, an investment minimum of about $2000 is required.
Become a Landlord
A classic way of investing in real estate is by purchasing a property and leasing it. There are many ways of doing this. For example, investors can buy a house and rent it out. The rental payment should cover taxes, insurance, mortgage, and maintenance – this will help you earn money. Rental properties can be shopped online too, or investors can opt for house hacking. This is buying a multi-unit building, living in one of the units, and renting out the others. This strategy helps in reducing your living expenses while making an income at the same time.
While owning rental properties is an excellent option, it also requires much capital to finance maintenance costs and cover vacant months.
House Flipping
House flipping suits those with significant experience in real estate marketing, valuation, and renovation. It’s basically what you see on HGTV – invest in an underpriced house, renovate it most inexpensively, and then resell it for a good profit.
However, it’s a lot harder than what’s shown on TV and more expensive, given the higher costs of building materials, so it’s also a time-consuming and costly way to invest in real estate. Nonetheless, it also has the potential to reap huge gains. So, to be a successful flipper, one should be well equipped to tackle unexpected issues, time-intensive mistakes, an increased budget, and a longer duration for renovation. At the same time, it’s crucial to have a team of experts consisting of interior designers, contractors, accountants, and attorneys.
The Takeaway
Contrary to what many assume, real estate investments are far more accessible now, and there are many ways to get involved in this industry. You must do your homework before settling into any of the abovementioned methods of investing in real estate and ensure that you are financially supported to take a certain level of risk.
Do take some time to familiarize yourself with the local real estate market, and remember that real estate is a relatively illiquid asset. Projects will generally take a long time to complete and pay off, so you need to understand that real estate is certainly not a get-rich-quick scheme. It’s a long-term investment that requires a lot of patience, hard work, and foresight. And if you do it right, the payoff can be incredibly worth it!