Buy REITs (real estate investment trusts) - 2.Use an online real estate investment platform - 3.Think about investing in rental properties - 4.NerdWallet does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks or securities. The most important steps in real estate investing happen before you buy anything, says Mehta. Crowdfunding platforms, an increasingly popular option for small real estate investors, are passive investments similar to REITs. But instead of going through a trust or a partnership, investors pool their assets and contact interested real estate developers or sponsors.
There are platforms for both commercial and residential real estate. While a traditional mortgage usually requires a 20-25% equity payment, in some cases a 5% equity payment is sufficient to purchase an entire property. This ability to control the asset at the time the papers are signed emboldens both real estate flippers and homeowners, who can, in turn, take out second mortgages on their homes to make down payments on additional properties. Here are five key ways investors can make money from real estate.
Owning rental properties can be a great opportunity for people with DIY and renovation skills, and who have the patience to manage tenants. However, this strategy requires considerable capital to fund upfront maintenance costs and to cover empty months. Real estate investment groups (REIGs) are ideal for people who want to own rental properties without the hassles of managing them. Investing in REIGs requires a cushion of capital and access to financing.
REIGs are like small investment funds that invest in rental properties. In a typical real estate investment group, a company buys or builds a set of flat blocks or condominiums, and then allows investors to purchase them through the company, thus joining the group. House flipping is for people with a lot of experience in real estate valuation, marketing and renovation. House flipping requires capital and the ability to make, or oversee, the necessary repairs.
The idea of house flipping offers a totally different view of property. Instead of a long-term company that manages tenants and adds properties to its portfolio, it is intended to be temporary. This is a unique and fairly new method of property investment. Through real estate crowdfunding platforms such as Fundrise and RealtyMogul, one can invest in specific real estate projects whose buyers are looking for loans.
The platforms screen buyers and projects to ensure they are legitimate before presenting them to members. Real estate syndication differs from real estate crowdfunding in that they focus on large-scale investments. Syndication also requires a formal investment agreement and cooperation between the parties. You can also manage your investment online, and you will get a summary with tax information at the end of the year.
To get a basic estimate of how much your investment might return, take your net profit (i.e. how much you think you will earn) and divide it by your upfront costs, including down payment, mortgage, property taxes, maintenance costs and emergency funds. Because the income is passive, despite the initial investment and maintenance costs, you can earn money while spending most of your time and energy on your regular job. And while managing real estate remotely can be done, it is still more efficient and effective to be local.
Real estate investment through crowdfunding is a popular option because you don't have to search for properties, get a mortgage loan, select or manage tenants or manage the property. Alexy entered the market using a strategy sometimes referred to as house hacking, a term coined by BiggerPockets, an online resource for real estate investors. Real estate investing offers leverage over assets, control over assets and a substantial return, if done correctly. This is the foundation and the steps I need to start my journey as a beginner in the real estate investment business.
People invest in real estate for a number of reasons, including generating rental income, benefiting from potential long-term appreciation of property values, and reducing net taxable income. A city or locality where the population is growing and a revitalisation plan is underway represents a potential investment opportunity. Direct investment in real estate through the purchase of rental properties offers the possibility of short-term returns from rental income, long-term returns from property appreciation and tax benefits that are used to reduce the amount of taxable income. Smart investors can take on debt as part of their portfolio investment strategy, but the average citizen should avoid it.
In the next section I will suggest a couple of specific real estate strategies that will help your savings rate. It sounds strange to invest in debt, but basically it means that you are investing in a mortgage loan on a property, and receiving a fixed portion of the interest as the loan is repaid. While investing in a rental property may offer the opportunity for recurring returns, owning a rental property outright also requires work and planning.