Purchasing and owning real estate is a rewarding and profitable financial option. Unlike stocks and bonds, real estate is a physical, tangible item that an investor can purchase, hold, flip and sell.
Another unique aspect of real estate is that potential real estate owners can also use leverage to purchase a property by paying a fraction of the entire cost now and then repaying the remainder, plus interest, over time.
While a conventional mortgage typically demands a 20% to 25% down payment, in rare circumstances as 5%, We understand that not everyone can afford that. So here are five different ways to invest in real estate.
- Real estate investors can use leverage to pay a portion of the upfront cost and pay the remaining balance
- Rental properties are the best way to generate consistent cash flow monthly
- Flippers purchase undervalued properties and renovate them to make a quick profit.
- REITs (real estate investment trusts) are essentially dividend-paying stocks.
1. Flipping House
When it comes to real estate investment, flipping properties is risky. Unlike landlords (investors who acquire and retain houses), flippers make their property the moment they purchase the property. The typical timeline for a flipper is 3-6 months of holding and renovating the property.
Flippers who cannot quickly sell their property in their designated timeline may get into problems since they often do not have enough uncommitted cash on hand to cover the long-term mortgage payment on the property. This may result in losses, which can add up if you have multiple projects at once.
House flipping is best suited to those with expertise in real estate valuation, marketing, and remodeling. Flipping houses requires a lot of upfront capital and the capacity to oversee any repairs that will be needed.
2. Rental Properties
Owning rental properties can be an excellent investment strategy for individuals looking to generate passive income monthly. However, this strategy does require a substantial amount of capital upfront.
Typically, a lender will want a 20% to 25% down payment plus an additional $10,000 in bank reserves before lending you money for an investment property.
Being a landlord can be a full-time job, especially if you own several properties. If you’re not interested in dealing with renters, this is where a property manager comes in. Property managers are responsible for the tenants, upkeep, advertising, and interviewing new renters when existing tenants vacate the premises.
3. Real Estate Investment Groups (REIGs)
Real estate investment groups (REIGs) are excellent for those seeking to acquire real estate properties without the difficulties associated with managing it.
REIGs are similar to small mutual funds, except they invest only in rental properties. In a typical real estate investment group, a corporation acquires or constructs a collection of apartment buildings or condominiums and then enables investors to purchase them directly from the business, thereby becoming members of the group.
While an individual investor may own one or more units, the investment group’s management administers all of the units collectively, managing maintenance, advertising vacancies, and interviewing tenants. The business receives a portion of the monthly rent from doing these management duties similar to property management.
4. Real Estate Investment Trusts (REITs)
A real estate investment trust (REIT) is the ideal option for investors seeking portfolio exposure to the real estate market without actually purchasing real estate.
A real estate investment trust (REIT) is formed when a company (or trust) utilizes investor funds to acquire and run income assets. There are many simple ways to purchase REITs, but typically they are bought through the major exchanges, similar to buying stocks.
Just like dividend-paying companies, REITs are an excellent option for stock market investors seeking consistent income or to add diversification to their portfolio. However, in contrast to the forms mentioned above of real estate investment, REITs allow investors to participate in nonresidential real estate assets, such as shopping malls or office buildings, that are usually inaccessible to individual investors. In addition, different REITs focus on specific types of real estate. For example, some may focus purely on commercial real estate while others strictly focus on residential.
5. Online Real Estate Investing Platforms
Real estate investment platforms are for individuals interested in pooling their resources to participate in a more significant commercial or residential transaction. The investment is made via online real estate platforms, often referred to as real estate crowdfunding platforms. It still needs financial investment, although less than what is required to own homes outright.