By learning how to invest in real estate, you can increase your financial stability and build your personal wealth. Here are a few ways you can get started in real estate investments, as well as several points to consider before diving in.
Buy a Home
Buying a home is how most people get their start in real estate investing. Over time, you build home equity whenever you make your mortgage payments. Property tends to appreciate over time, so owning a home is usually a good investment when you plan on staying put for several years. For many households, an owned residence is the most valuable investment they have.
While a 20% down payment was once the norm, the typical down payment is usually much lower than that now. In some cases, you may be able to put as little as 3% down. If you qualify for a VA home loan, you may not have to put anything down at all.
Consider Flipping Houses
House flipping is a common investment strategy that involves buying a property with the goal of fixing it up and reselling it at a profit within a short timeframe (usually less than a year). Some flippers will buy a “fixer-upper,” complete repairs and then sell the home at a much higher price. Other people will look for homes in places where property values are rapidly rising.
Become a Landlord
If you want to generate additional income through real estate, consider becoming a landlord. Perhaps you already have a home you’d like to rent out, or you’re interested in a specific property. Before taking this step, think carefully about your goals. Many people assume that becoming a landlord is an easy, no-fail way of earning a passive income. However, there is plenty of work involved. You’ll need to research your local market, determine the appropriate amount of rent, advertise your property and screen tenants. Once you have a tenant in place, you’ll be responsible for repairs and maintenance as well as dealing with any legal issues if there is damage to your property or your tenant stops paying rent.
Another option you have is to hire a property manager to handle tenant issues as they arise. Property managers will charge anywhere between 8% to 10% of your monthly rent. Depending on the individual company, be prepared for these charges to affect your profits.
Hack Your House
House hacking is a relatively new real estate investment strategy and involves purchasing a property and then living in one part of it while renting out the other rooms to cover the cost of housing. This may involve living in a property like a duplex or renting out spare rooms. With house hacking, you can reduce your living expenses, learn what it takes to become a landlord, build home equity and get your foot in the door of real estate investing.
The important thing to remember about house hacking is that you need to be comfortable with the idea of sharing a living space with others or living in close proximity to your tenants. Before house hacking, be sure that your roommates or tenants sign a contract that lays out all the details, including how much they owe for rent, their obligations and any other household rules you would like to have in place.
Invest in a REIT
A real estate investment trust lets you make investments without needing to actually purchase properties. You may be able to invest in publicly traded REITs by using your individual retirement or brokerage account. These types of trusts are popular with investors who are interested in dividend income. You may also be able to invest in several REITs with one investment by using exchange-traded funds. There are risks involved in these types of investments, though, so make sure to consider whether this type of real estate investment strategy works for you.
Crowdfund With Other Investors
Crowdfunding has become a popular way to raise money for products and business ventures. Crowdfunding real estate investments is no different. Online, you can pool your money with other interested investors to fund real estate projects. Some of these online platforms offer crowdfunded REITs. These are privately held trusts whose shares are not traded on the stock market.
Crowdfunded real estate may be a good fit for you and can be a great way to generate passive income. However, many of these platforms will require significant minimum investments and charge high fees. It’s important to keep these facts in mind before taking the plunge.
What Are the Pros of Investing in Real Estate?
Like any other venture, investing in real estate comes with its own set of unique risks and rewards. Property values do tend to increase over time, making real estate a proven way to build wealth. It can also produce steady cash flow, whether you’re renting your property out or passively investing and earning dividends. You can also diversify your portfolio with real estate and enjoy a bevy of tax advantages.
What Are Some of the Cons With Investing in Real Estate?
Real estate investing is not for everyone, which is why it’s also important to weigh the potential risks involved. The costs can be high upfront, and if you’re interested in flipping distressed properties, finding a lender willing to provide financing can be difficult. For properties you own, there will be ongoing expenses and you’ll be responsible for maintenance, repairs, property taxes and insurance. It’s also not easy to cash in on real estate holdings without significant costs involved. There is also the potential for incurring high tax bills, especially if you flip houses or make short-term investments.
Real estate is a terrific method to make money, and it’s not hard to get started. You can find the appropriate strategy that works for you by balancing the advantages and downsides, looking into your options and getting expert help if you need it.