5 Ways to Invest in Real Estate

Real Estate Investing continues to be a hot topic of discussion especially among the financial independence community and those looking to build wealth. I firmly believe we are all budding entrepreneurs who seek to control our destiny, work for ourselves and feel good about making a difference in the world. Real estate investing is an excellent way to stretch one’s entrepreneurial muscles.

It wasn’t until I met my husband (then boyfriend) that I fully understood real estate investing or even cared about it. It was an area he was excited and passionate about and that I naturally (as the engaging and supportive partner) got excited about too. At the time he had a mixture of both residential and commercial properties that garnered significant income - the best part being it was passive income, or as he calls it mailbox money. That is, money that arrives in the mail or in your account that you don’t physically go to work for. FYI, it doesn’t come without its struggles but the reward can be life altering.

There are several ways to get involved in real estate. They include the purchase, ownership, management, rental and/or sale of real estate for profit.

THERE ARE GENERALLY FIVE LARGE CATEGORIES OF REAL ESTATE INVESTING:

1. Rental Property: Become a Landlord

   This is what most people think of when they hear the term real estate investing: You buy a house, rent it out and collect a paycheck each month. It sounds easy, but it comes with challenges. Finding a property with the perfect mix of location, the right price, higher-than-average rental rates, great tenants, etc is difficult. In addition to this, there are at times issues where tenants won’t pay rent, high taxes, foundation issues, etc and unless you hire a property management company you will be dealing with these yourself. In an ideal situation, a property appreciates over the course of the mortgage, leaving the landlord with a more valuable asset than he/she started with.

2. Real Estate Investment Groups

   Real estate investment groups are like small mutual funds that invest in rental properties. In a typical real estate investment group, a company buys or builds a set of apartment blocks or condos, then allow investors to purchase them through the company, thereby joining the group. A single investor can own one or multiple units of self-contained living space, but the company operating the investment group collectively manages all of the units, handling maintenance, advertising vacancies and interviewing tenants. In exchange for conducting these management tasks, the company takes a percentage of the monthly rent.

3. Real Estate Trading (Flipping)

   This typically involves buying a distressed property with the intention to refurbish it and sell it quickly for a profit. You have to buy low and sell high; you need to estimate closing costs, resale value and rehab costs carefully. From there, you’ll need to add your holding costs (insurance, property taxes, utilities, interest on the money if you’re borrowing it) and your cost to sell (typically 8%). This is for people with significant experience in real estate valuation and marketing. flipping houses has a shorter time period during which capital and effort are tied up in a property. But depending on market conditions, there can be significant returns, even in shorter time frames.

4. Real Estate Investment Trusts (REITs)

   A REIT is a company that owns and finances real estate properties. You, as an individual, can invest in that REIT and essentially be investing in real estate. This is a great option for someone who only wants portfolio exposure to real estate and is not looking for a side job

5. Crowdfunding

   What if there was a really great property for sale but it is too expensive for you alone to invest in? With crowdfunding platforms, you can invest in real estate by pooling funds and sharing the returns with other investors. Real estate crowdfunding is a passive investment; you won’t have to become a landlord, but you can still reap the rewards of real estate investing.

BONUS: If you’re a dentist going into practice ownership, it is very beneficial to own the commercial real estate of your practice - more on this in a letter post.

If you ever considered going into real estate investing but not sure what avenue to take, these are all great options to get involved. Remember, all investments have risks but its how you manage and mitigate those risks that make the difference. Take a look at these Real Estate Investing Tips before diving in.

This is the 6th and final article of the Investing Series. Click here for Part V, Part IV, Part III, Part II and Part I

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6 Tips on Getting Into Real Estate Investing

Going into real estate can be an exciting investment strategy, one that is both satisfying and lucrative. However, it’s not all rose petals and fairy dust. Every investment comes with risk but it’s how you manage and mitigate those risks that make the difference. If you are seriously considering diving into real estate investing here are a few things to take into account.

SIX (6) THINGS TO KNOW ABOUT REAL ESTATE BEFORE INVESTING

1. Establish Relationships

   It is not just a numbers game, it’s also a people game -Relationships are important. Everything is about relationships and real estate is no different. You have to find a reputable and trustworthy realtor who understands your goals, an honest contractor who won't take advantage of you, and tenants who are credit worthy and will pay on time.

2. Location

   Where you buy a property is just as important as what property you buy. Do your research to see what developments are happening in the area you are looking to purchase. An average house may yield higher returns in a more developed part of town than a really nice house in a poorly developed part.

3. Funding

   Evaluate the different ways of getting in. Wealthy people invest in real estate because it is a secure way to keep and grow their money. Three ways to fund your real estate property: Self Financing(using your own cash), securing a loan, or raising capital via equity investors.

4. Tax Advantages

   Owning real estate offers Tax shelters. Do your research to educate yourself on how to take advantage of these.

5. When To Purchase

   Real Estate has cycles. Purchase when markets are low. Acquiring properties in a low market can sometimes bring considerable appreciation values. Also consider purchasing in less desirable areas. They have a tendency to turn around over time and bring notable returns.

6. Be Flexible

   Things will not go as smooth as planned. It is inevitable that things will go awry at some point, whether it’s a bad tenant, bad property management, etc. Maintain a level of flexibility to help deal with any situation that arises.

Although the above six tips are geared mainly at owning rental property as a form of real estate investing, there are generally five different ways to invest in real estate which we will get into in the next post.

This was Part V of the Investing series: Click here for Part IV, Part III, Part II and Part I

Our investing series will continue in our next article and will dive into the different ways to invest in Real Estate. Sign up below to receive the Investing Series directly to your inbox:

This article is for educational and informational purposes only. Contact a financial advisor before making any financial decision.

This article may contain affiliate links.