Real estate investing can be a lucrative career path, but many new investors do not know where or how to begin investing. There are numerous ways to invest in real estate and participate in the current real estate boom. Below are 5 ways to do just that.
Purchase Your First Home
The first real estate purchase you should make is the home that you will live in. The best course of action is to look for a home in a neighborhood that is appreciating in value and that will require little work. It should be a modest home. One of the cornerstones of real estate investing is to purchase the least attractive home in the best neighborhood. Cosmetic updates will do wonders and you will gain instant equity.
Buy Rental Properties
Buying rental properties is the oldest and most common way to invest in real estate. If you have renovation skills or like do-it-yourself (DIY) projects, this could be a great way to get into real estate investing. Being a people person helps because you will have to deal with tenants and contractors when going down this path. This type of investing can require substantial capital to finance renovations and cover vacancy costs while you search for suitable tenants.
Flipping houses can be very lucrative, but it is also something that should be done by the more experienced investor. Flipping requires knowledge of real estate valuations, marketing, and financing. Flipping requires getting in at the right price and know exactly how much you can spend to make a profit. Spending too much or going over budget can lead to substantial losses. If you are not able to sell a house quickly for a profit, significant cash could be tied up in the property. This could lead to growing losses and lack of capital to complete other deals.
Real Estate Investment Trusts (REITs)
A REIT is created when a corporation buys or purchases investment properties using the money of investors. REITs usually offer “shares” of the corporation to investors and pay out the profits of the investments in regular dividend payments. These payments can either be monthly, quarterly, semi-annually, or yearly. A REIT must pay out 90% of its taxable profits to remain classified as a REIT. A benefit of doing this is the avoidance of paying corporate income tax. REITs are a solid investment for investors looking to get into real state in a fashion that is similar to the stock market. REITs can specialize in many types of properties from general apartment buildings to specialized markets such as luxury land and homes in Ft. Lauderdale.
Online Investment Platforms
There are online real estate platforms that connect real estate developers to investors. Much like the crowdfunding platforms Prosper and Lending Club, investors look to receive interest payment for the funds they have invested in various real estate projects. The drawback to this type of investment is that it can be highly illiquid and speculative.
As you look at your options to begin your real estate investment career, the key is to choose the investment vehicle that best fits your objectives. Are you looking for long term price appreciation? Are you looking for steady, monthly cash flow? Are you looking for tax relief? These questions are important in deciding which type of investment you want to make. Whatever you decide, educate yourself first and enjoy the ride!