Real estate investing is becoming more popular than ever. It’s difficult to beat real estate’s powerful mix of profitability and liquidity, and it’s one of the few investments that is tangible. Financial planning experts largely believe that real estate should be a part of most portfolios, given its investment traits. And for the investor that wants to do more than hit a button and cross their fingers, real estate offers a level of control that most other assets can’t.
Those interested in real estate investing may not know how to get started. Real estate’s unique investment profile has a steep learning curve, but once one has an understanding how the industry works, they will be ready to build their own real estate investment business.
What type of real estate investing is right for me?
If there’s one thing that truly sets real estate apart from other investment options, it’s accessibility. As any financial planner will tell you, if you don’t have a small fortune to invest, stay away from the stock market. That’s not the case with real estate, which welcomes investors of all kinds, no matter where they are in their financial development. A lack of starting capital can be made up for with some effort. And if the capital is there, real estate offers some interesting opportunities for investors.
Again, where to start investing in real estate?
Here are a few options:
- Real Estate Wholesaling – Wholesaling is an extremely popular approach to real estate investment, for one major reason. Wholesaling requires no capital to get started. It helps to have some, but plenty of successful wholesalers have made impressive profits with close to zero cash. A wholesale transaction looks like this. The wholesaler identifies a property that could turn a profit if rehabilitated and flipped or rented out. This usually means a house that most would consider a fixer-upper. In many cases, the people who own these homes are in danger of losing their property to foreclosure, and are willing to sell at a price that is far under market value in order to liquidate it immediately. The wholesaler uses this as an opportunity to link the property owner to a property rehabber. The wholesaler will sign a contract with the property owner, stating that the house will be sold to someone (not necessarily the wholesaler) within a given timeframe. The wholesaler then contacts a property rehabber (hopefully a contact they have already established), shows them the property and makes an offer. The property owner gets the cash they need, the property rehabber makes a profit by rehabilitating the property and selling or renting it, and the wholesaler collects a tidy sum from the rehabber as a sort of finder’s fee.The only thing it takes to be an effective wholesaler is some effort and knowledge of the market, and those are things that can be learned.
- Buying and renting out a property – This is a great option if an investor has some capital and would prefer a stable, steady flow of income, with the added bonus of having an asset that will likely appreciate in value with time. Rental properties are categorized as residential, commercial, industrial, retail and mixed. Most real estate investors start with residential properties, as they tend to be easier to upkeep and tenants are more readily available. The only issue is the rapid turnaround of tenants, but this can actually be an advantage in a market that is valuing up all the time. You can always ask for what the market will bear, and adapt quickly once it changes. Of course, if you own the property, you have to maintain it. Being a landlord is not for everyone, but for people who are handy and willing to put a little sweat into their assets, it is a perfect fit. And if you want to own without maintaining, you could always hire a property manager to do the upkeep work for you.
- Rehabbing properties – If you really like putting sweat equity into something, then property rehabbing and flipping could be therapeutic, as well as highly profitable. Property flipping isn’t as simple as it looks on TV, but it’s not rocket science either. Find a property that needs some love, make the required repairs and upgrades, market it and sell it for a profit.The challenge with real estate rehabbing is that a lot of knowledge is required. Aside from understanding the market and real estate transactions, real estate rehabbers have to make accurate estimates regarding maintenance and repairs. If the numbers are off, the rehabber walks away with nothing, and there’s usually a surprise or two lying in wait.This is the reason many rehabbers partner with a home contractor from the outset, as a contractor will be able to provide valuable insight into repair costs.
- Real Estate Investment Trusts, or REITs – REITs are ideal for investors who believe in the value of investing in real estate, but aren’t interested in becoming a landlord, flipping properties, or really engaging in any form of real estate transaction whatsoever. REITs are trusts that operate like mutual funds. They represent companies that are active in the real estate industry, such as hotel or retail space builders. By investing in a REIT, you’re investing in one or more of these companies, and profit from dividends as the company succeeds.REITs are a viable option even for people with modest amounts of capital. And REITs are required to distribute at least 90 percent of corporate earnings to shareholders, so if the company is profitable, so are the investors. There are some tricky tax laws regarding REITs, though, so make sure you understand the tax implications before committing to this form of real estate investing.
Real estate investing draws in people from all walks of life, of all ages and of all temperaments. Whether you’re someone that likes finding a hidden gem and negotiating a sale, or someone who likes demo and design, there is a form of real estate investment that will suit you perfectly.