If you’ve ever had a landlord or know one, then you probably don’t dream of being one from how the job appears. Receiving calls about oversized bugs or overflowing toilets doesn’t seem like such a glamorous job. But done right, real estate investing can be profitable and worth it. It can help diversify your existing investment portfolio and be an additional cash flow stream. And it doesn’t always require showing up at a tenant’s every call. The trouble is that many new investors don’t know where or how to invest in real estate. There are many ways to invest in real estate and I’m going to help you out and guide you through them. Let’s begin.
#1: Narrow down your location
When someone decides to become a real estate investor they tend to get too wild when it comes to possible locations that they can buy real estate in. Too wide of a perimeter can simply create more problems for you since you have more investment properties to look at, each one having its own price and structural qualities. Narrow down your choices to a specific state, city, or, better yet, neighborhood. Ask yourself, does it have convenient access to public facilities, such as supermarkets, schools, and hospitals? Is the crime rate low? Is the neighborhood open and respectful to all demographics and lifestyles?
You also need to consider your personal proximity to the property, as it will play a role in your management style. If you live out of the area, you will need to consider a local property management company in order to find success as a long-distance landlord. Identifying the location you want to invest in is your first step. Now you not only have to think about the type of property you want to invest in but also what strategy you will use.
#2: Buy a rental property
When you want to invest in real estate you need to think about the best types of investments. Purchasing homes and renting them out is a great way to produce extra monthly cash flow. To do this, you have to purchase a house that has a combined monthly mortgage payment, home insurance payment, and property tax payment lower than the rent the property commands. There are several ways to do this, from buying in an area with high rents to putting a lot of money down so that your mortgage payment is low.
Of course, with every good comes the bad and rental property is no different. There are two downsides to owning a rental property directly. First, it typically requires a lot of cash up front from the down payment to the maintenance required. You really need to assess whether your return on investment will be worth it or not. The second is dealing with tenants. You’ll need to screen renters before letting them move in. You’re also bound to hear sad sobbing stories at one point or another so you’ll have to learn to be firm with renters. If you’re the type to easily give in to people, you may be better off letting a property management service manage your rental properties. Either way, there is ongoing work required.
#3: Flipping Houses
Another simple way to invest in real estate is by flipping homes. It can be a bit tricky, but extremely rewarding. Flipping a house is the sum of purchasing homes under market value, fixing them up, and then selling for a profit. To be a successful flipper, you need to hunt down those bargain homes. The ideal flip home would be one that only needs minor repairs. You could then make the home look more visually appealing and sell for profit. When you decide to flip homes, you have to prepare yourself for the possibility that the home may not sell fast or for much of a profit. Real estate investors take a big risk when flipping homes, which is why you have to pay special attention to the home’s location, needs, and price.
#4: Rent a portion of your existing home
Another way to invest in real estate is by renting out a part of your own home. You see, if you aren’t sold on the thought of purchasing a home only to earn your money little by little, you could first test the waters by renting a portion of your house. You have a couple of options to do this. You could rent a spare room in your home or you could rent the basement. If you’re yet to purchase your first home and like this idea, you could even buy a duplex and live in one apartment and rent the next.
One great advantage to renting a portion of your house is that you get to watch your tenant closely. It’s less likely that a tenant will try to stiff you for the rent payment when you’re in the same household. Renting a portion of your house also gives you the ability to get a feel for what it’s like to be a landlord without making such a huge financial investment.
#5: Real Estate Investment Trusts (REIT)
If you really want to invest in real estate but don’t want to get quite so hands on, you could take your real estate investing to the stock market. Real Estate Investment Trusts (REIT) are great ways for you to invest in real estate without being so actively involved. A REIT is a fund that is set up to invest in mortgage instruments, bonds, and stocks in the real estate niche. There are a few different types of REITs such as equity, mortgages, and hybrid. All three typically offer high yields so if you’re short on time, investing in REITs is probably the way to go.
In the end, there are many different ways to invest in real estate that all lead up to success and help you make money in real estate. All you have to do is find the strategy you’re most comfortable with that suits your situation.