What are the best ways to invest money in real estate?
Investing in real estate is all about making money. In fact, over 80% of the wealthiest people in the world have accumulated most of their fortunes through real estate investing.
This is why real estate investors are so common in our times. Most individuals who are looking for the best ways to make the most profits end up considering or committing to real estate investing.
So, since investing in real estate can help you achieve the profits that you’ve always dreamed of, it is important to consider your options – what are the best ways to invest money in real estate?
Ways to Invest Money in Real Estate – Income-Producing Assets
One of the most common and best methods for investing your money in real estate is to invest in income-producing assets. Income-producing assets are investment properties that will generate an active or a passive income periodically, depending on the type of income property that you’ve invested in.
The most common type of income-producing assets in real estate are rental properties. Rental properties are investment properties that you rent out to tenants in exchange for a rental income.
There are two main types of rental properties in real estate investing: short-term rental properties (also known as Airbnb rentals) and long-term rental properties (also known as traditional rentals). Both of these types of income properties can be very profitable, although they do require a lot of time and effort to be invested in them as well.
However, investing in a rental property will also give you the option of hiring a professional property management company to drastically reduce the amount of time and effort that you would spend on managing and running the property, turning this into a passive income investment that you can enjoy.
Related: The 6 Hidden Costs of Owning Rental Property
Ways to Invest Money in Real Estate – Appreciation
One of the best aspects of real estate investing as a whole is appreciation. One of the ways to invest money in real estate is to simply purchase any type of investment property. If a real estate property has the potential for appreciation, it means that having ownership over the property is profitable and an investment on its own.
Appreciation is considered the frosting on the cake in real estate investing. It is difficult to predict, but when it happens, it’s always profitable.
Real estate investment strategies that rely on appreciation are typically called buy-and-hold investment strategies. The way it works is very simple: you purchase a property, and you own it long enough for the property to appreciate in value before you can sell it again at a higher price than what you’ve paid for it, making a significant profit from the sale.
Related: Top 7 Cheapest Cities for Buy-and-Hold Investment Properties
Ways to Invest Money in Real Estate – Flipping and Reselling
A fixer-upper, fix-and-flip, or whatever you want to call it is also one of the best ways to invest money in real estate. The strategy revolves around finding investment properties that are in distressed conditions and that require significant amounts of repairs and renovation before they can be habitable again.
A fixer-upper real estate investor will purchase distressed properties at a drastic discount due to their condition, fix the properties, and then sell them at a significantly higher price for a profit.
The main aspect of a fixer-upper, or a fix-and-flip strategy, is that the cost of purchasing the property and renovating it should not be higher than the price at which you can sell it; otherwise you won’t be making a profit, and you might even be losing money on your investment.
The most common type of real estate properties that are used for a fix-and-flip strategy are foreclosed and HUD homes. This is because these types of properties are typically in a distressed condition and are put up for sale at very drastic discounts, which is perfect for the strategy.
Note: To start looking for and analyzing the best investment properties (including foreclosures) in your city and neighborhood of choice, click here.
Ways to Invest Money in Real Estate – Wholesaling
Wholesaling is another very popular investment strategy and one of the quickest ways to invest money in real estate. In fact, as a wholesaler, you will barely be investing any money at all, but you can still reap the rewards.
Wholesale real estate revolves around purchasing a contract for the sale of a property, and then finding an interested buyer to assign the contract to at a slightly higher price.
A simple example of real estate wholesaling would be to find a seller who wants to sell their property as soon as they can. You sign a contract with the seller to purchase the property for $100,000. Then, you will find a suitable buyer who is willing to pay $120,000 for the property, and you assign the contract to them. In this way, you will be making $20,000 in cash without even having to own the property or pay anything for it.
Of course, in order for the wholesaling strategy to work, you will need to include a clause in the contract that allows you to assign it to a different buyer in order to avoid any legal complications.
Ways to Invest Money in Real Estate – REITs and eREITs
REITs and eREITs are among the easiest ways to invest money in real estate.
Investing in REITs (Real Estate Investment Trusts) is very similar to investing in the stock market. A real estate investor will invest their money in a REITs, and the REIT will allocate that money to any type of real estate property (typically in commercial real estate) and manage all aspects related to the investment.
The profits that are generated from the development project upon its completion will be distributed among the real estate investors who have invested their money in that project in the form of dividends.
Although REITs generate the lowest amount of profits out of most real estate investing strategies, they are typically less risky and require the least amount of effort or time investment on the part of the investor.
Similarly, eREITs (a term made popular by Fundrise.com) are REITs that operate through an online platform or website, allowing for ways to invest money in real estate from the comfort of your own home. All it takes is a computer and an internet access.
Related: What is REIT and Is It a Good Real Estate Investment Strategy?
Bottom Line
There are numerous ways to invest money in real estate. Each method has its own advantages and disadvantages, and some can generate higher profits at the cost of riskier investments, while others can generate a passive income periodically without the investor having to put any effort into running and managing the investment.
No matter what method you decide to go with, real estate investing can be a great way to make profits and build a wealth. The more methods you use and the more properties you invest in, the more you will expand on your knowledge and experience, allowing you to find more advanced and creative ways to invest money in real estate.
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