The best reason you should consider real estate investing is because of the potential for higher returns compared to other asset classes (such as investing in the stock market). In fact, real estate has had an average annual return of 11.42% since 1970. To compare, the S&P500 had an average annual return of 10.31%. Now there are times like 2008 in where real state slumps, but as we all have seen it does tend to recover quite nicely.
But it’s important to remember that comparing real estate to stocks is comparing apples to oranges. While there are some similarities, there are many differences that investors need to realize and understand as well. But I always stress a well balanced portfolio for any investor. Some real estate, some stocks bonds and mutual funds, and of course always have some cash on hand for just in case.
Here are 5 Easy Ways to Investing In Real-estate:
1. Invest In A Bigger Real Estate Deal
There are two great things about investing in a larger real estate deal online:
- Low minimums – depending on the platform you use, you can invest as little as $500 and be an owner in a property.
- You don’t have to be an accredited investor – in the past, to participate in these types of investments, you had to be an accredited investor, but that rule has gone away for certain investment types
I personally recommend two platforms for investing in real estate:
- RealtyMogul – RealtyMogul offers investors a variety of properties to choose from, including residential, mixed-use, commercial and retail. They don’t charge their investors fees, instead placing that burden on the property holders. Investors can start seeing a return just a few weeks after the project is funded. We are partners with RealtyMogul and think it’s one of the best platforms out there right now.
- Fundrise – One of the most popular real estate investing sites, Fundrise has a minimum investment of $500 and charges between 0-3% in fees. The site is ruthless about which projects it accepts – only about 5% of proposals are chosen. Fundrise is another one of our favorite sites simply because of the range of investment properties they have to choose from, but also because you don’t have to be an accredited investor to invest – they are one of the only platforms that allows this currently.
2. Buy A Rental Property
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.
There are two downsides to owing 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.
The second major downside of real estate is dealing with tenants. You’ll need to screen renters before letting them move in. You’re also bound to hear sob 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 oversee your rental properties. Either way, there is ongoing work required.
You could always hire someone to get you tenets like renters warehouse or another property management firm. But the downside there is that usually means less money in your pocket. If you are willing to trade off dealing with tents less for a little bit less profit than this would be the route to go.
Depending on who you talk to, rental properties can be very lucrative. And, if you do the upfront work of finding those hidden gems, you can let a property management service do the rest and rental properties can be a form of semi passive income.
3. Flipping Houses
Flipping homes can be a bit risky, but also extremely rewarding. And, since property values are back on the rise, this is a good time to get started flipping homes. 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 less work you have to do the better. The ideal flip home would be one that only needs minor cosmetic repairs. You could then make the home look more aesthetically 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. You take a big chance when flipping homes, which is why you have to pay special attention to the homes location, needs, and price. However, if you have the knack for flipping houses, you could find this to be one of the best investments you’ve ever made.
4. Rent A Portion Of Your Existing Home
If you aren’t sold on the thought of purchasing a home only to recoup 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.
First 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. This is also known as house hacking.
The advantages 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 monetary investment.
5. Real Estate Investment Trusts (REIT)
If you think real estate is a great investment 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 actively involved. An REIT is a fund that is setup to invest in mortgage instruments, bonds, and stocks in the real estate niche.
There are a few different types of REITS; equity, mortgages, and hybrid. An equity REIT invests in properties, a mortgage REIT invests in mortgages, and a hybrid is the mixture of the two. All three typically offer high yields – basically you get paid back from the interest others are paying on their mortgages.
Some of the more popular REITs include American Capital Agency (NASDAQ: AGNC), Annaly (NYSE: NLY), Realty Income (NYSE: O).
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