The most common way to start real estate investing is by buying property and then renting it out. You can also invest in properties through portfolio management, which is when you purchase properties and manage them for others as part of your investment portfolio. Or you could become a property manager who oversees the day-to-day operations of rental units for others. Whatever route you decide on will involve plenty of hard work but also some savvy planning and strategizing along with strong financial acumen, and deep knowledge about laws and market trends (both national and regional).
Investing in real estate is deemed hard but not as hard as it sounds. You just need a few tips on how to do it correctly. It doesn’t matter if you have or have never invested in real estate as this guide gives you all the information you need to start your real estate investment journey.
Things to do Before Starting Real Estate Investment
Like any other type of investment, there are different things to consider before starting the investment. Research is the most important of all. To start you off, read real estate investment articles, consult the field experts, enroll in real estate classes if possible and learn from the people already investing in the field. Don’t wait to learn the hard way in the field; you should learn from the experts.
Types of Real Estate Investments
There are different reasons why people invest in real estate, and financial freedom is the major among them. Other reasons may include cash flow, property appreciation, leverage, tax benefits, etc. According to data received based on the Ofirio statistics, different real estate investments will offer you different cash flows, leverage, appreciation value, and benefits, among others. These are the common types of real estate investments:
- Residential real estate investment–This is where you invest in property that families or individuals dwell in (homes).
- Commercial real estate investment–This type of investment consists of property or buildings intended for business. In other words, these are office buildings.
- Industrial real estate investment–This type of investment includes storage units, distribution centers, assembly plants, warehouses, and manufacturing facilities.
- Retail real estate investment–This is an investment where the investor holds a property used for retail business. These include shopping centers and malls with tenants including restaurants, retail shops, salons, or similar enterprises.
- Mixed-use real estate investment–This investment is where the investor holds property with units that accommodate two or more of the others named above.
Best Ways to Invest in Real Estate
Investing in real estate involves different methods. As a beginner, you may be confused about where to start. To ease this down, the investment ways listed below will help you know where to start.
Real estate wholesaling is a strategy where you secure a property at a market value through a contract and find a prospective buyer to buy it from you. In this strategy, you don’t take actual real estate property ownership. Instead, you own the contract that allows you to purchase the property and then look for a buyer for this contract. Wholesalers make money by adding a fee to the contract when selling it. Wholesaling is low-risk and doesn’t require a lot of starting capital. However, it’s very competitive, and the returns may not be that high. In some states also, wholesaling is termed illegal.
Real Estate Investment Trusts are companies that own real estate properties. You invest in REITs by buying shares from these companies. REITs are created on the same idea as mutual funds, where shares are pooled together. REITs, however, consist of pooled companies. The means of earning from REITs is through dividends. Public listed REITs are the easiest and the best for beginners to invest in. So, you can use this strategy as a way of diversifying your portfolio. The disadvantages of investing in REITs are that you have no control over the investment, and the changing market conditions can negatively impact investment growth.
House flipping involves buying a property, renovating it to increase its value, and then selling it to make a profit. The key is identifying a property with low market value and spending less on renovations. This strategy is, however, risky if you spend too much money on the renovation. This is because you may not be able to sell it at a value high enough to make a profit.
Real estate prehabbing is different from rehabbing. Prehabbing is where you make small changes to the property just enough to attract other investors. This may include painting, cleaning, or landscaping. Prehabbing will save you a lot of costs, and you can make a more significant profit upon selling the property. It also involves minimal risk. The setback with this method is that not all properties are suitable for prehab.
This method involves purchasing an apartment with many rooms. You then live in one of the rooms and rent the other rooms. If you are lucky enough, you may earn enough from the rent to cover the cost of the apartment. House hacking is a low-risk investment. However, there are some disadvantages since you will live under the same roof as your tenants.
Real estate investment has, over the years, proved to be a good investment. The problem, however, is always how to get started due to a lack of information. The good thing about real estate investing is that it’s easy to learn and implement the knowledge in the real market.