Real estate investing offers a way to earn money while building for your financial future — but it's also an easy way to lose your shirt if you're not careful.
By conducting thorough research and implementing reliable systems, it is possible to recoup your investment potentially earn a profit as a real estate investor, and reap the rewards of some types of equity gains.
Perhaps get some tax deductions, and rental income, learn about P/R ratios range, and up your credit report all when being part of the real estate business.
In this article, we explore 8 ways you can generate income through real estate investment. Each method is unique, and we do not recommend attempting all 8 approaches. This is a good starting point for beginners.
1. A Basket of Investments
This method offers a lower-risk approach to investing in real estate compared to purchasing investment property.
REITs are similar to mutual funds but for real estate, essentially serving as a basket of investments.
Explore a variety of investment opportunities nestled in the basket just waiting for you! Ditch the solo investments and join the investment party by jumping into the basket with other savvy investors. REITs, managed by a trusted company, bring a unique twist to traditional real estate investments and could help with your cash-for-equity ideas.
Investors contribute funds to purchase and develop properties with REITs, receiving dividends as a return on their investment. So do have a conversation about opportunity costs with an agent before jumping in.
REITs are commonly managed by a company, known as a trust. REITs are available in various forms, including those focused on healthcare buildings such as hospitals or retail buildings like shopping malls.
REITs are considered a good starting point for those interested in investing in real estate. They offer the opportunity to invest without the need to purchase a property outright and can be accessed through a broker. Real estate investment trusts are a reliable option for diversifying your portfolio with low risk. An index fund operates without the need for active consideration.
2: Rental Property
Many people have considered purchasing a single-family home and renting it out for passive income with the help of a real estate agent.
Investing in such real estate can be a profitable venture if you choose your property and tenants carefully. Rent prices and the cost of rent, in general, tend to increase annually, allowing you to potentially earn more as you pay off the mortgage on the property.
Many people these days cannot afford to buy a home, pay property taxes, or even come close to affording today's housing prices/and or purchase price of a home.
Keeping pace with inflation, considering mortgage insurance, not being in the correct income bracket, having bad credit scores, paying an extra mortgage payment, or making a life-changing, six-figure decision to buy a home is not in the cards for everyone.
Renting as a primary residence in most major cities as well as larger non-coastal cities may be their only option which makes owning rental properties for some a great investment which could be a profitable strategy.
However, there are some things to keep in mind and consider when entering the rental market.
It is important to consider your wealth strategy and make rational decisions when thinking about the additional costs, such as capital expense costs, ancillary costs, acquisition costs, maintenance, and repairs, or other renovation decisions that come with owning a home.
Many people overlook this huge range of expenses when purchasing a house and get involved in the annual rent of tenants and don't consider the possible assumptions about inflation in the years ahead.
As the landlord, you are responsible for addressing any issues that may arise, such as a tenant calling at 3 a.m. to report a burst pipe.
You will also need to be well-versed in the concept of equity, market-based equity gains, and other types of equity gains, and have important conversations about opportunity costs in the real estate market.
There is a misconception that landlords from San Francisco to the Big Apple can set rent prices as they please, but this is not accurate. Rent prices are determined by market demand. In the event of an economic downturn, you may need to consider renting out the property at a rent lower than your mortgage. You may experience a decrease in financial resources each month, impacting your cash flow.
3: House-hacking
House-hacking involves finding creative ways to offset homeownership costs in the housing market.
But the real estate industry is a lucrative way to make money in real estate.
House-hacking involves buying a multi-unit building, living in one unit, and renting out the others. This helps you earn income through renting out the property while also reducing expenses by residing there.
Investing in a multi-unit property is comparable to buying a rental property, with the difference being that you are accountable for maintenance and repairs for multiple units rather than just one. This aspect may pose a challenge for individuals interested in house hacking.
For those with the financial resources to hire repair people or property managers, house hacking can be a lucrative method to generate income in the real estate market.
4: Flipping Property
The process of flipping houses involves purchasing a property, making renovations, and selling it for a profit.
House flipping can be a time-consuming and expensive way to make money in real estate. It requires both the financial investment to purchase a property and the effort to renovate it.
Renovating a house does not guarantee it will sell better, as factors like the real estate market, economy, and location also play a significant role.
However, it still has the potential to generate significant profits if managed effectively.
5: Unlock the Potential of Short-term Room Rentals
Similar to house-hacking, this method involves renting out a property where you currently reside. The difference is that you don't need to be the owner of the property to rent it out.
Websites like Airbnb and Craigslist allow individuals to earn money by renting out rooms in their homes or apartments.
And with the combination of the right listing and the right location, you can make a good amount of money from those sites.
6: Real-estate Funds
Real estate investment funds function similarly to REITs, where investors pool their money to invest in companies that manage properties. The distinguishing factor is that real estate investment funds also involve direct investments in real estate properties.
REITs function similarly to stocks and other equities, while real estate funds resemble traditional mutual funds.
“Real-estate funds generally increase in value through appreciation and generally do not provide short-term income to investors as do REITs,” explains Stuart Michelson, a finance professor for Stetson University. “Real estate funds gain value mostly through an increase in value of the assets.”
You should expect higher fees than a standard REIT.
7: Discover the Magic of Online Real-estate Investing
This method involves using Web platforms like Fundrise to handle your investments for you.
These platforms facilitate connections between real estate managers and potential investors for property purchases or investments.
It functions similarly to Kickstarter, but with real estate investments offering returns like typical stock or bond investments, rather than physical products.
A web platform can provide a more intuitive experience.
8: Unleash the Power of Private Equity Funds
Private equity funds, similar to mutual funds, combine funds from various investors to invest in property. Unlike real estate investment trusts (REITs), these funds are usually restricted to accredited investors with substantial capital to invest.
Typically, a minimum investment of $100,000 is needed to start investing, although this amount can vary depending on the fund and may reach seven figures.
While it may not be as readily available to the average person as other options on this list, it is important to mention it in case it is relevant to you.
Hire the Best
The key takeaway to real estate investing is to do your homework and hire the best.
If you're looking to become an investor, relocate or visit Montauk, or New York in general, be sure to hire professional Realtors like Taleene and Ritchie Krug Jr. who can find you exactly what you're looking for in terms of the best home, house, condo, or townhome.
Lifelong residents of Long Island, are part of a team with more than 40 years of combined real estate experience. They have a deep understanding of how real estate has evolved through the years which results in a team with unique dynamics and expert negotiating skills being put to work on your behalf. With 20 offices spanning Brooklyn Queens & Long Island, nobody is better equipped to handle your real estate needs.
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