One of the finest ways to invest your money is in real estate because it can be both rewarding and profitable. How so? Because instead of paying the entire purchase price upfront, prospective real estate owners may choose to pay a specific portion of the total cost upfront and then pay the remaining balance, plus interest, down the road.
Even while a traditional mortgage often demands a 20% to 25% down payment, only 5 percent is required to purchase an entire property in rare circumstances. Investors who can take possession of a property as soon as a contract is signed feel empowered, and it’s this confidence that allows them to take out second mortgages on their own homes to fund the purchase of more properties.
In this article, we’ll be sharing five surefire strategies for real estate investors to gain money.
Let’s get started!
1. Real Estate Investment Trusts (REITs)
To start off on our list, we have REITs.
PROs of Investing in REITs | CONs of Investing in REITs |
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What are REITs, exactly?
Real estate investment trusts (REITs) are perfect for investors seeking portfolio exposure to real estate without committing to a traditional real estate transaction.
A REIT is formed when a corporate entity (or trust) uses money from investors to buy and operate income properties. REITs, like any other stock, are traded through major exchanges.
To keep its REIT status, a corporation is REQUIRED to pay 90% of its taxable profits in dividends. REITs bypass corporate income tax by doing so, whereas a standard company would be taxed on its profits and then have to determine whether or not to distribute its after-tax profits as dividends.
Another thing that you have to know about REITs is that — like the usual dividend-paying stocks, REITs are a good investment for stock market investors seeking consistent income. Compared to the types of real estate investment, which we will talk about in a bit, REITs provide investors with access to nonresidential assets, such as malls or office buildings, that are typically inaccessible to individual investors.
More importantly, because they are exchange-traded trusts, REITs are extremely liquid. To put it another way, you won’t need a real estate agent or a title transfer to cash out your investment.
One last thing, if you wanna consider investing in REITs, you should differentiate between equity REITs which own buildings and mortgage REITs that provide real estate financing and dabble in mortgage-backed securities (MBS).
Both provide real estate exposure, but the nature of the exposure differs. An equity REIT is more traditional in a sense that it represents real estate ownership, whereas mortgage REITs focus on the income generated by real estate mortgage financing.
2. Property Rentals
Another easy way to put money into real estate is through property rentals.
PROs of Investing in Rental Property | CONs of Investing in Rental Property |
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Individuals with do-it-yourself (DIY) renovation skills and the patience to manage tenants may find owning rental properties a great opportunity. This strategy, however, requires significant capital to cover upfront maintenance costs and cover vacant months.
Single-family homes, condominium units, apartments, townhouses, duplexes, and other types of residential real estate are all examples of residential real estate. The term residential rental property distinguishes this type of rental real estate investment from commercial properties, where the tenant is typically a corporate entity rather than a person or family, and hotels and motels, where the tenant does not stay long term.
Residential rental property can be an appealing investment option. In contrast to stocks, futures, and other financial investments, many people have firsthand experience with rental and residential real estate markets as tenants and homeowners. Because of this familiarity with the process and the investment, residential rental properties are less intimidating than other types of investments. Aside from the familiarity factor, residential rental properties can provide:
- Monthly cash flow.
- Long-term appreciation.
- Leverage using borrowed money.
- The previously mentioned tax benefits on the income generated by the investment.
3. Real Estate Investment Groups (REIGs)
People who wish to own a rental property but don’t want to deal with the inconvenience of managing it can consider REIGs. An investment in REIGs requires a financial cushion and the ability to secure loans.
PROs of Investing in REIGs | CONs of Investing in REIGs |
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What are REIGs?
In simple words, REIGs are small mutual funds that make rental real estate investments.
In a typical real estate investment group, a company purchases or constructs a collection of apartment units or condominiums, then allows investors to purchase them through the company, thereby joining the group.
An individual investor can own one or more self-contained living units, but the company running the investment group manages all of the units collectively, handling maintenance, advertising vacancies, and interviewing tenants. The company takes a specific portion of the monthly rent in exchange for performing these management tasks.
The standard real estate investment group lease is in the name of the investor, and all the units would pool a portion of the value to protect against vacancies. As a result, even if your unit is empty, you will receive some income.
The costs should be covered as long as the vacancy rate for the pooled units does not rise too high.
4. Online Real Estate Platforms
Another way to put money into real estate is by using online real estate platforms.
PROs of Investing in online platforms | CONs of Investing in real estate platforms |
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These are perfect for those who want to join others in investing in a larger commercial or residential deal. The money is invested through online real estate platforms, also known as real estate crowdfunding.
NOTE: This still requires investment capital, albeit less than that required to buy properties outright.
Real estate crowdfunding is a newer method of investing in commercial real estate. Some websites provide ordinary investors with access to previously reserved assets for the wealthy.
How does it work?
Individual investors seeking exposure to real estate without the hassles of owning, financing, and managing properties use real estate investment platforms to connect with developers and other real estate professionals.
Online platforms bring together investors looking to finance projects and real estate developers. You can diversify your investments with little money in some cases.
5. House Flipping
Last but not the least on our list would be house flipping.
PROs of House Flipping | CONs of House Flipping |
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Only those with extensive knowledge in real estate appraisal, marketing, and renovation should try their hand at house flipping. As a house flipper, you’ll need money and the expertise to make or supervise necessary renovations.
“House Flipping” is the “wild side” of real estate investing, to use a popular phrase. Real estate flippers differ from buy-and-rent landlords in the same way as day traders, and buy-and-hold investors do. Real estate flippers, for example, typically aim to sell their inexpensive properties within six months of purchasing them.
Property flippers typically don’t make any improvements to the properties they buy and sell. If the investment lacks intrinsic value, it will be ruled out of the running for investment consideration.
Flippers who aren’t able to quickly sell a house may run into financial difficulties if they don’t have a lot of funds on hand to cover the long-term mortgage payments on the property. This can lead to escalating losses in the future.
Another type of property flipper earns money by purchasing low-priced properties and enhancing their worth through renovation. Investors who can only afford to take on one or two properties at a time may want to consider this as a long-term investment.
Key Takeaway
Real estate investors can construct a successful investment program by paying only a tiny portion of a property’s total worth upfront, regardless of whether they use their assets to generate rental income or wait for the opportune selling moment. And just like any other investment, real estate has profit and potential regardless of the state of the general market.