Real estate investment is incredibly exciting and offers significant returns on investments. Unlike investing in stocks and bonds, investors buy the property and either sell it on or rent it out. There are several different ways to invest in real estate and manage that investment. Here’s our guide on how to invest in real estate.
- Become a Landlord
It takes a lot of patience and some DIY know-how to be a landlord but it does offer good returns on investment. Buying rental property guarantees regular income and many of the expenses associated with being a landlord can be taken out of taxes, while losses can be offset through other investments.
The downside is that it can be a real hassle to deal with rental properties without a property management company. Tenants can be a hassle to deal with and landlords may be forced to deal with periods of vacancy or offer their property at a reduced rent to cover their expenses until the market stabilizes. Perhaps the biggest advantage of becoming a landlord is that all income generated by the house is pure profit once the mortgage is paid off.
- Join a Real Estate Investment Group
Real estate investment groups are for those who want to invest but don’t want to have to deal with running a property. It offers a hands-off approach to commercial property investment while still offering income and appreciation on a property.
A real estate investment group is like a mutual fund that invests in rental properties. They are generally used to buy condos and apartment blocks. The company buys the properties and then allows others to purchase them and join the group. Single investors are able to purchase as many living spaces as they want, but the group is in charge of managing all of them, including handling advertisements and interviews, maintenance, and more. The company behind the group takes a share of the rental income to cover their expenses and as payment for their work.
These groups offer a theoretically safe way to invest in real estate, but they are still just as vulnerable to the fees of the mutual fund industry. There is also the potential risk of being scammed. Be sure to do your due diligence when buying a townhouse as an investment through an investment group.
- Consider Flipping Houses
House flipping, also known as real estate trading, is for people who have a lot of experience with real estate marketing and valuation. While it does boil down to “buy a property and sell it on”, there’s a lot that goes into the process.
Real estate traders look to buy and sell the property as quickly as possible, often within four months. A pure property flipper doesn’t even want to improve the property. They simply buy properties that already have the intrinsic value necessary to sell for a profit. They won’t consider buying farmland as an investment, for example, if they can’t sell it for a profit right away.
There are also those who buy property at a reasonable price and then add value to it through renovations. This kind of investment is more long-term and investors are only able to afford one or two properties at a time.
- Real Estate Investment Trusts
A real estate investment trust (or REIT) is a good fit for an investor who wants to include real estate in their portfolio without having to go through traditional methods of buying and selling property. They are sort of like the stock version of real estate as they offer dividends and present a great method of commercial property investment without the need to actually buy the property.
REITs are formed when corporations/trusts use money from investors to purchase income properties and manage them. They are bought and sold on exchanges like other kinds of stocks. Corporations must pay 90% of taxable profits in the form of dividends to maintain their REIT status, meaning that REITs avoid having to pay corporation tax.
This kind of investment allows someone to get involved with non-residential properties such as malls and office buildings. These would be far outside of the realm of a single investor. They are a good fit for stock investors who want to treat real estate like stock. They could be considered a more formal a real estate investment group.
Whether an investor uses their property to generate income or as a holding property to sell at a later date, real estate investment offers the chance to make a significant investment by paying a relatively small amount of the property value upfront. As is the case with any kind of investment, please note that the potential profits and costs of real estate investment can go up or down depending on the market status.