If you’ve experienced life as a tenant, then you probably have a negative view about being a landlord. After all, who wants to be dealing with bugs and plumbing problems and chasing up rent payments? However, that is only one unglamorous snapshot of the property business.
In fact, investing in real estate can be a lucrative avenue to explore, and if you have dreams of emulating successful entrepreneur Bharat Lall, who has a reputation for rehabilitating commercial properties, then real estate investment can be a great option. The problem for many new investors is where to start. Here are four different ways to get into investing in property.
REIT stands for Real Estate Investment Trust. A REIT makes it possible for you to invest in this area without having to hold or be responsible for the physical property. REITs are organizations that hold mainly commercial real estate, including offices, retail areas, hotels and apartments, and they can be ideal both for those who are looking for a regular income in retirement and for investors who want to reinvest their earnings.
There is a lot of variety and complexity in the REIT market. Some are traded on exchanges, while others are not publicly listed, and the kind of REIT you opt for will depend on the level of risk you are prepared to accept, as non-traded REITs are difficult to value precisely.
As a rule, it is a good idea for new investors to concentrate on publicly traded REITs, which you can buy via an online broker. All you need to do is set up an online brokerage account, and choose the REIT you are interested in, though it is worth remembering that most REITs will specify a minimum level of investment.
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Online property platforms
If you’ve heard about companies such as Prosper and LendingClub, which enable connections between borrowers and lenders, then you will already have some idea about online real estate investment. These online platforms enable you to finance real estate projects through equity or debt, and can provide you with monthly or quarterly returns in exchange for paying a fee and committing to take on a certain level of debt.
These can be a lucrative option, but there are downsides for unwary investors. These investments are illiquid and you can’t easily get out of them if they turn bad, unlike stock market holdings. They may also not be suitable for those with smaller investment budgets, as many are only available for investors who earn over $200,000 or who are worth $1m. For those who don’t come into that category, platforms such as RealtyMogul are an option.
House hacking is a type of rental property investment that has proven increasingly popular in the US. It involves buying a property and then renting out part of it to tenants. Essentially, it is the same as being a landlord, but you are also living in the property that you’re renting out. It also means that you are still eligible for a residential loan when you buy the property. Of course, you can still choose the traditional rental model. One thing to make sure of if you are buying property to rent out is that your expenses will be lower than the rent you can charge. If you want to avoid being the person who has to sort out the roofing or basement problems, then you can hire a property manager or agency to deal with day-to-day maintenance.
Fix-up and resell
This is the classic method of profiting from real estate, but it shouldn’t be overlooked. Also known as house flipping, it is a simple idea. Purchase an undervalued home that needs a little care and attention, renovate it as cheaply as you can, and then sell on for a profit.
Naturally, it can be more complex than that, and there is also a high degree of risk since you can’t be sure when you purchase it how much the repairs will cost, and you can’t be certain of the eventual selling price. One way to mitigate the risk is to undertake the project with an experienced partner, who can add expertise in the areas where you may not be confident, such as project management or estimating renovation costs.
Another risk is that the longer you hold onto the property, the more money you lose because you are making mortgage payments while you own it. One way to avoid this is to move into the property while you are renovating it, as long as you don’t mind the smell of paint!
There are many ways to make money from property investment, and as long as you are aware of the risks, it can be a great avenue to explore. Hopefully, these ideas will give you a starting point on your real estate investment journey.