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Most people dread being a property owner because of the seemingly small but pestering and undesirable demands of a rental building, such as fighting oversize bugs and draining and cleaning overflowing toilets.
However, you can make handsome profits from real estate using the right investment plans. Real estate is an ideal investment class to incorporate into your portfolio for extra risk management.
Luckily, there are good management strategies to ensure the landlord is not the one who answers every tenant’s call of distress.
Unfortunately, many prospective real estate investors lack the knowledge to invest in property and make a good return. This article provides the best real estate investment strategies, from the easiest to the most sophisticated methods.
#1. Invest In Real Estate Investment Trusts (REITs)
REITs refer to equities in companies that own physical real estate investments like retail spaces, apartments, hotels, and office buildings. People often compare them to mutual funds because they let you put your money into real estate without owning the land or the building.
REITs allow investors to earn high dividends, making them an ideal joint investment opportunity. Additionally, you can choose to reinvest the dividends if you are not in immediate need of a regular income.
If you are investing for the first time, it is best to restrict yourself to publicly-traded REITs only, which can be bought via online brokers or brokerage firms.
Is it advisable to invest in REITs? Investment in REITs can be a diverse topic. This is because some REITs can be traded on a stock exchange while others cannot be traded publicly.
Knowing the correct type of REIT is essential for you to determine how much risk you are willing to take. For instance, non-traded REITs are often difficult to value and sell. First-time investors are better off investing in publicly-traded REITs using a brokerage account.
This means you will need a brokerage account. To set up an account, you only need about 15 minutes for the registration process. Additionally, most companies require you to have any initial investment (however, the REIT comes with a minimum investment).
#2. Work With An Online Property Investment Platform
We are talking about companies like Prosper and LendingClub. The main work of these companies is to link investors with lenders willing to finance needs like weddings or home improvement plans. That way, you will master online real estate investment better.
These platforms help real estate developers access investors who might fund their construction projects using debt, equity, or a mix of both. Upon investing their cash, investors benefit from a monthly or quarterly distribution relative to the risk they take and remit a user fee for the platform.
As with most forms of real estate investment, these are hard to value and convert to cash; compared to stocks, they are more challenging to dispose of in the market and get your money.
The challenge is finding the capital you need to make the profits because only accredited investors can use these platforms. According to the Securities and Exchange Commission, accredited investors are individuals who have earned more than $200,000 ($300,000 with a spouse) in the previous two years or have a net worth of $1 million or more, excluding the value of their primary residence.
However, if you cannot qualify for financing from these platforms, consider Fundrise and RealtyMogul.
#3. Remember, You Can Flip Investment Properties
As with HGTV, you can inject a little capital to uplift a piece of undervalued real estate by renovating and reselling it to make a profit. This is called house flipping; you can make profits this way, but it is a little more complex than it appears on TV.
House flipping requires an accurate determination of the cost of the renovations before undertaking the venture, which is a rather technical task because of the level of mathematics involved.
When venturing into house flipping, it is best to look for strategic partnerships. For instance, you can look for a contractor who is experienced in cost estimation and focus on capital contribution and project management.
Another risk is that holding on to the house for an extended period after completing renovations potentially exposes your income to erosion by the mortgage interest. One way to reduce this risk is to live in the property as you repair and prepare it for the market.
This can only work if the house's condition is not dire, and you can put up with a bit of dust while you carry out the repair work.
#4. Consider Leasing Part Of The Property
Consider leasing out part of the house to get deeper into the real estate market. You will begin to earn immediately. This arrangement allows one to earn income to offset some of the construction costs, and the tenant can live in their home as long as the property price continues to increase.
It can be specifically helpful for older people. According to Harvard University's Joint Center for Housing Studies, about 25% of people aged 65 years and more senior living alone in 2016 used over 50% of their income on housing. However, the number reduced to 12.9% for the older people with roommates.
Living with a roommate can make it easy for borrowers to pay their mortgages, especially for the younger home-buying generation. However, if you are not ready to live with a roommate, consider options on the Airbnb site with reasonable offers for people who are not big on commitment.
That way, you do not need to accommodate a long-term tenant; Airbnb evaluates potential tenants, and its host guarantees safeguard against damage.
Nonetheless, renting out a room is a good and straightforward way of investing in real estate. If you have an extra room you are not using, consider renting it out.
#5. House Hacking
House hacking is a term made up by BiggerPockets, an online resource platform for real estate investors.
It is a strategy where you take ownership of your investment property by either leasing out rooms or leasing out units in a multi-family building, as in the case of Alexy. With house hacking, investors can buy a property with up to four units and still qualify for a home loan.
Indeed, the investor can purchase and lease out the entire property. Look for a property where the total operating expenses are less than the rent you ask for from the property.
Also, hire an experienced property manager to avoid those constant calls to fix random problems like water leakages. Alternatively, if you plan to manage the property yourself, ensure you learn enough about the industry and the essential maintenance activities, etc.
Is It Advisable To Include Real Estate In My Investment Portfolio?
Yes! This is because real estate is a unique asset category that must be included in a well-diversified investment portfolio. The exceptional quality of real estate sets the asset class apart from other assets like bonds, stocks, or commodities.
Real estate investments can generate value from rental income, price appreciation, or by increasing your equity amount each time you pay down your mortgage.
As with other types of investments, the best real estate opportunities best suit the investor's financial position, to settle on the best real estate investment opportunities, evaluate the amount of money and time you are willing and able to commit to the investment without affecting your pre-existing financial obligations such as household expenses.
If you do not want to do all the work by yourself, consider pursuing investment strategies that do not require you to own the property directly, such as REITs or crowdfunding.
I started BMOGAM Viewpoints 15 years ago as a way to compile all my views on investing in one place. I own my home, have some real estate, and own a few stocks like most people, but what really drives my interest in investing is I have a strong love of precious metals, especially gold.