If you want to learn how to invest in real estate, then this article is for you. In this article, we’ll cover the basics of investing in real estate. We’ll also discuss different types of investments and what it takes to be an investor. So if you want to start investing in real estate, keep reading!
Real estate can provide high returns and diversification for your portfolio and getting into the market can be as easy as buying a mutual fund.
Real estate investing is an exciting and profitable investment strategy. It has increased in popularity over the past decade because of the strong demand for housing, which has driven up prices.
Table of Contents:
What is Real Estate Investing?
Real estate investing is the purchase, ownership, lease, or sale of land and any structures on it for the purpose of earning money. This includes residential property, commercial buildings such as offices or factories, industrial buildings such as warehouses or factories in which raw materials are processed; and land used for agriculture purposes.
There are many different ways you can invest in real estate, but we believe that buying single family homes is one of the best ways for investors to get started.
How to Invest in Real Estate
The best way to invest in real-estate is to buy and hold a property that you think will appreciate in value. See more: How to make money Investing in Real Estate.
If you want to invest in real estate, you must:
- First find a property that you wish to buy.
- Then, you need to visit the site of the property and take pictures with your phone.
- Next, use these pictures as proof that the property is for sale.
- Finally, contact a local real estate agent and ask him or her about buying the property for a profit.
You can start by looking at the latest property sales data for your area, which will give you an idea of what properties are selling for. Once you have a good idea of what properties are selling for, it’s time to decide on how much money you want to invest in each one.
Real Estate Investment Method
In order to make an informed decision about whether you should invest in real estate as an investment method for your financial planning needs, you must carefully consider three primary aspects:
- The Cost
- Potential Risks
- Return on Investment (ROI)
As a result, Diversified Real Estate Investment is a great choice for those who are looking for a long term investment. However, the returns can be quite low if compared to other types of investments.
Diversified Real Estate Investment is intended to allow investors to invest in real estate without having to make major financial commitments or taking too much risk. Even though you do not have any kind of significant financial commitment, it still involves a lot of work and research until you find your perfect property.
> Read more: How to analyze the Risk Factor of all your Investments.
Find the right location to invest in
You don’t want to be stuck with a rental property in an area that is going down rather than up or has already started picking up steam. A city or locale where the population is growing and its revitalization plan is underway represents a potential investment opportunity.
When looking for rental properties, consider low property taxes, a decent school district, plenty of amenities, such as restaurants, coffee shops, shopping and parks nearby. In addition to this look for easy access to public transportation that reduces your commute times.
Categories on Real-State Investment
There are many different types of real estate investments. These include buying and selling commercial properties, apartments, houses, lease option, rental homes and investment properties. There are also private residential property investments that involve purchasing a home with the intent to rent it out or live in it yourself.
- Commercial real estate: Commercial real estate is property that is used for business. Commercial real estate includes office spaces, retail units, and large apartment buildings.
- Industrial real estate: These properties serve an industrial purpose, such as storage warehouses or factories.
- Residential real estate: Residential real estate consists of single-family homes, multi-family homes, townhouses, etc. Occupants may own the properties or rent them.
- Land: Generally consists of undeveloped property. There are limited ways to earn money from land as an investment. Landowners can earn money through use of the land, such as agriculture; or upon development or sale of the land.
Real Estate investing is a great way to invest in real estate without having to deal with the hassles associated with active management investing.
Best ways to invest in Real Estate
The main advantage of this type of investment over others is that it allows you to diversify your portfolio and take advantage from different markets at the same time.
1. Buy REITs (Real Estate Investment Trusts)
A real estate investment trust (REIT) is a company that invests in, and manages, real estate by buying and owning property. REITs are sometimes called “real estate companies”. The term REIT describes the investment strategy of most publicly traded companies active in this industry.
Read more about Types of Trust Funds in our Financial Glossary.
Are REITs a good investment?
REITs are a very popular investment choice – you can invest in many different types of REITs and have diversified investments. You don’t have to worry about the market, because REITs are traded on stock exchanges around the world.
If you don’t have a brokerage account, then opening one takes less than 15 minutes. Many companies require no initial investment (though the REIT itself may have an expense ratio), but there are some out there that do charge for the service.
2. Online Real Estate Investing Platform
These platforms connect real estate developers to investors who want to be paid a monthly or quarterly fee in exchange for taking on a significant amount of risk and paying a fee to the platform. Like many real estate investments, these are speculative and illiquid — you can’t easily unload them the same way you can trade a stock.
In 2015, the online real estate investing platform known as Trulia introduced a new feature called “Zillow’s Agent Finder”. This service allows users to find local agents who can help them buy or sell their homes. The goal of this feature is to help people find professionals who are familiar with their needs and will be able to assist them in their real estate transactions.
The rub is that you may need money to make money. Many of these platforms are open only to accredited investors. Alternatives for those who can’t meet that requirement include Fundrise and RealityMogul.
3. Property-Flipping / House Flipping
Property flipping is becoming increasingly popular because there are so many homes on the market that are being sold below their value.
AKA House Flipping, is the practice of purchasing a house, remodeling and then quickly reselling it to a new buyer at a much higher price.
In the popular television show, “Flip or Flop,” a couple of real estate agents flip houses in Los Angeles. This type of home flipping has become an extremely profitable business for many people who are looking to make money quickly by purchasing and selling homes.
What does real estate investment reform consist of?
Real estate investment reform is the following:
- Buying a property below its market value.
- Carrying out the necessary reforms to increase its value.
- Selling the property obtaining an adequate profit margin.
It is very convenient nowadays this type of investment in real estate because in the market there are many properties that are sold below their value.
If we want to do the remodeling on our own this type of investment will require:
- Money to remodel the property.
- Time to remodel the property.
- Knowledge about real estate renovation projects.
If we decide to outsource the remodeling to a construction company, architect or professional, in the best of the cases we will be able to do it counting only with the necessary money.
How to make money Investing in Real Estate
Investing in real estate is a wise decision for those who are looking to make money. You can learn more about this process here:
| Loan interest | Rental | Appreciation | |
|---|---|---|---|
| Cash flow | Regular cash flow | Regular cash flow | Single lump-sum return (when asset is sold) |
| Risk | Less risky than equity because it’s lower in the capital stack | Riskier than debt, because it’s higher in the capital stack | |
| Investment type | Debt | Equity | Equity |
| Return | Income | Income | Appreciation |
| Others | Can be unsecured or secured with collateral | Requires equity ownership | Active or passive investment |
| Requires hands-on management or delegation |
How to make money Investing in Real Estate (more details)
1. Rent
Rent can be paid for a property to earn income from rental payments. As with the income that is generated from debt investments, rental income provides a steady cash flow.
Depending on how the property owners manage their real estate, they may keep all of their earnings (self management) or share earnings with a property management company. Rental payments may offer the potential for passive income depending on the investment method.
1.1 Short Term Rentals (AirBnb)
While some people prefer to rent out the entire unit, others prefer to rent out only part of their home. Partial rentals are becoming more and more popular as a way for travelers to save on the cost of hotels and enjoy the freedom of an entire house or apartment.
AirBnB is a popular website that allows people to rent out their homes, apartments, or rooms for short periods of time. This site has been around for several years and provides many benefits for both hosts and guests.
2. Interest from Loans
Loans are the financial instrument used for real estate investing. This involves lending money to a developer who then builds houses or apartments, and takes out loans from investors in return for paying them regular interest payments.
Lenders can be either banks or private individuals with funds that they want to earn a steady income from through investments. Loans help investors make money by taking risk off their shoulders as lenders are paid if their investment is sold at a profit and must hold enough cash reserves to absorb any losses that might occur.
Interest rates can vary between 4% – 7%, giving borrowers interest on their loan once the property is no longer required as collateral against the loan (and the property has been sold). Risk associated with this type of investment is minimal, as it does not involve actual ownership of real estate assets but rather an agreement to receive returns based on those assets such as rents or lease payments.
3. Appreciation
Appreciation is the increase in the value of a property over time. To an investor, appreciation is the potential profit available to be obtained by selling the ownership of a property.
In conclusion
Real Estate Investing is different than running a business that produces cents per dollar out there.
Investors are able to leverage the buildings they own into multiple streams of revenue such as rents or mortgage payments or by selling them off and reinvesting proceeds into other properties which produce revenue in different ways. All while being paid back principal plus interest out at least double what they invested initially with minimal risk of loss due to fluctuating market conditions over time.
