10 Of The Best Ways To Invest In Real Estate Successfully
Since 2000, even in the midst of the recession of 2008, real estate investments have outperformed the stock market approximately 2-1 in the United States.
Even so, people struggle to know how to invest in real estate. The options abound, and you don’t want to lose your money.
Keep reading to learn the best ways to invest in real estate.
Learn the Best Ways to Invest in Real Estate
Maybe you’re attracted to exotic locations and just want another place to stay when you head overseas. Perhaps the tropical Pattaya property or some Tahitian hut has captured your eyes.
You may be more of a candidate for real estate investment than you think. Read on to learn ten great ways to invest in real estate.
1. Pay Off Your Home First
Before you begin pouring money into a real estate investment that may or may not bring in big dollars, pays off your existing home first.
You will benefit nothing if you lose your own home in the process of trying to purchase other properties.
Create a plan that allows you to pay your own home off quickly. Once you’re not paying your own mortgage, you will have extra money that will allow you more financial options.
You will have the first option of putting your current mortgage payment toward a rental property. you can put your mortgage toward a rental property
2. Consider Cash
You do not have to incur more debt to earn money as a real estate mogul. Start small and with what you can afford.
Make a budget for yourself where you spend less than what you make, and then hole up that cash for your next real estate investment. Then, when you find that deal of the century, you’ll have cash for a down payment if not for the whole piece of property.
3. Landlord Option
If you’re interested in residential real estate, you can go the landlord route. This means you purchase a home or a set of apartments, maintain the property, and rent out the rooms or the entire house.
Landlording means having a specific set of skills. You need to have both management skills and renovation skills.
When you purchase a property to rent out, you will need substantial capital up front for the maintenance costs and improvements from the start.
If you cannot complete any renovations on your own, you will need to have a trusted contractor on your team.
Renting your property means you have a potential regular income. However, you need to hedge yourself financially for the months when you have no renters.
Prepare yourself too for your tenants. You may end up with the best renters known to mankind. You may also end up with the police at your property’s front door on a regular basis.
Come up with a vetting system, a questionnaire of sorts, to help you find the best renter possible.
On the positive side, once you pay off the mortgage to your rental, if you didn’t pay for it all up front, everything you garner is pure profit.
And you end up with a valuable asset. You also end up with some great skills as a landlord. So you’ll grow your character and your bank account.
4. Trading or Flipping
Thanks to HGTV, real estate improvement, and trading has become a thing. Some people even flip properties as a fulltime job.
Trading or flipping means you purchase a piece of property with the intention of improving it and then selling it without using it yourself. You’re flipping it from yourself to another owner in a relatively short amount of time.
Flipping works well for people with experience in valuing and marketing real estate. If you have a knack for what a piece of property is really worth, flipping may be in your wheelhouse.
However, flipping, like most real estate transactions, takes capital and the ability to repair a home or oversee a contractor. Like with any property you purchase and maintain, if you do not have the skill set to improve it, you will need a trusted contractor in your budget.
Because you will own the property for just a short time, your capital and effort are tied up for a shorter amount of time.
With the right market, flipping yields significant returns in a short amount of time.
However, you need a deeper market knowledge along with a bit of luck. Real estate markets can go south quickly, and you do not want to find yourself on the wrong side of the market.
Make sure you have enough cash stored away in case this investment goes sour.
5. REI (Real Estate Investment Groups)
Real estate trading groups are a type of ETF (exchange traded fund).
ETFs have grown popular in recent years. Real estate moguls have invested $3.5 trillion into ETFs as of October 2018.
If you’re an investor interested in real estate and wanting to expose your portfolio to real estate, an REI will work well for you. You may not want to invest in a traditional real estate transaction. REIs are a good option then.
Basically, REIs are dividend-paying stocks. Typically the core holdings are commercial real estate properties with long-term cash producing leases.
REIs are not just basic real estate agreements.
An REI carries more risk because you do not have any say so over the real estate itself. You do not have control over what happens on your property or what the property is used for. For all you know, you may end up housing a strip club.
6. New Home Construction
New home construction is on the rise since the recession in 2008; new homes are steadily on the rise as Americans need more housing.
Bloomberg speculates that America isn’t building enough new housing, which means they will continue to need housing. There isn’t a surplus.
Investing in new home construction does not necessarily mean you’re building a new home yourself. You can invest in large home building companies such as LGI Homes, Lennar, D.R. Horton, or Pulte Homes. So you’d be buying stock in a real estate company, essentially.
When you invest in new home construction, you’re investing in the builders with the thought that more people than ever both need and want a new home. At this point in time, new home construction investment makes sense.
7. Online Real Estate Platform
Some companies prefer to use the internet to find their investors. You have the option of investing in online real estate. This typically means investing in commercial or residential real estate online and receive a cash flow.
When you choose an online real estate platform, you avoid the red tape of personal real estate.
Online real estate platforms are comparable to investing in a REIT. Your money goes into a pool with other investors. You receive the dividends and distributions along with the long-term appreciation of your joint properties.
Fundrise and Realty Mogul are two different comparable crowdfunded investments that qualify as online real estate platforms.
8. Rent Out a Room
If you’re not quite ready to buy stock in a real estate company or you’re not prepared to buy a second home, consider renting out a room or exploring apartments for rent in Warren, MI
Air BnB is a tech company that acts as the middle man, allowing homeowners to rent out their entire home or even just a room in their home on a nightly basis.
Companies like Air BnB confine their services to residential properties for short periods of time only.
You earn quick cash by renting your property by the night.
Renting out a room of your house has its pros and cons. On the positive side, you have little money invested while earning some quick cash. You also get to meet some pretty interesting people.
This type of rental agreement requires less expertise and supervision than the traditional rental agreement.
However, you need to prepare yourself for irregular cash flow and some weird guests on occasion.
Also, check your homeowners’ association agreements to make sure you can legally rent out a room in your home.
9. Opportunity Fund
An Opportunity Fund is a great way to invest in real estate, avoid excessive capital gains taxes, and feel good about your investment.
Opportunity Fund is an investment model where investors pool their money in a single fund to invest in Qualified Opportunity Zones.
State governors nominate census tracts of low-income communities to qualify as an opportunity zone. The US Department of Treasury must also certify the area as an opportunity zone.
Basically, you’re investing in a piece of property to make a neighborhood better, to improve a sketchy area of town and create opportunities for those who live there.
Opportunity Funds come with limitations: your group may only construct new homes or develop unused buildings. Also, the group must invest more in improvement than it paid to buy the property within 30 months of purchasing the property.
On the upside, Opportunity Fund investors receive substantial capital gains tax incentives.
An investor can defer taxes on realized capital gains invested in an Opportunity Fund until December 31, 2026.
If the investor has held his share for five years before December 31, 2026, the investor receives a ten percent reduction on tax liability on deferred capital gains.
If the investor has held his share for seven years prior, he receives a 15 percent reduction on tax liability.
And if an investment is held for ten years, the capital gains earned from the investments are permanently excluded from capital gains taxes.
10. Real Estate Mutual Funds
Lower risk funds for real estate exist too. Real estate mutual funds are much like REITs but with less risk.
Like traditional mutual funds, real estate mutual funds have less risk, slow growth, and proven track records.
Keep Your Shirt, Invest Smart
With so many options, you can now see the best ways to invest in real estate. If you have some money burning a hole in your pocket, consider these options.
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