The financial freedom that comes with real estate investing can be tremendous when done right. With proper time and dedication, it can be an extra income stream that diversifies your existing investment portfolio. The problem is that most new investors don’t know how or where to invest in real estate. This article will break down exactly how you can start real estate investing in 2021.
What is Real Estate Investing?
Real estate investing involves the sale or purchase of buildings and land to earn money. The main categories of real estate include:
- Residential real estate: includes vacation properties, apartment buildings, houses, and any other properties that people live in, which is the most specific category for a new investor to start.
- Commercial real estate: involves any building for doing business, such as retail storefronts and office spaces. Commercial real estate is more expensive when compared to the residential estate, and involves more managed property.
- Industrial real estate: includes large one-purpose buildings that generate sales such as car washes, storage units, and warehouses.
How to Start Real Estate Investing
Before making your first investment, you need to know how large of a down payment you want to make. It can be a risky investment; therefore, you should only invest an amount you can potentially lose.
For example, if you want to invest in commercial property, most lenders will ask for a minimum 30% down payment. But suppose you don’t wish to take too much financial risk. In that case, you can go the residential route where you can put down as low as 15%.
Now that you know understand a little about risk mitigation, let’s discuss the different ways you can start real estate investing.
1. Buy a Rental Property
A committed residential real estate investor can purchase a property and be a landlord. As long as you have tenants, you can earn a guaranteed monthly income. This option is the most common way to make money in real estate.
If possible, you can purchase and rent out an industrial or commercial property. The management can be tricky, and its initial cost is much higher, but the payout is more lucrative.
When you want to buy a rental property, make sure you understand your real estate market. You will want to research everything from the tenant’s demographics, surrounding areas, and how prices have changed with time.
Roofstock can be an excellent place to start. It’s a great marketplace that will help you understand single-family rental units. The website also makes it simple for you to browse for homes. Browse their catalog and check out the ones you like. From there, it will allow you to obtain information such as the current rent, neighborhood rating, and more.
2. Invest in Real Estate Investment Trusts
Investing in Real estate investment trusts is similar to investing in stocks. You as the investor give money to a corporation or trust which buys a property. You will then start getting a share of the dividends when the property appreciates. You can purchase and sell REITs on most stock exchanges.
This option is the easiest way to start investing in real estate. The greatest advantage of this option is that there is no initial down payment, and most corporations usually payout at least 90% of the property income as dividends to the investors.
This method is also a liquid investment, as you can quickly sell your shares and get your money without having to find other investors.
The chances are that you would be trading publicly-traded REITs because private REITs are only accessible to accredited investors with considerable net worth.
3. Join Crowdfunding Platforms
A crowdfunding platform is a passive investment similar to REITs. It is a popular option for small real estate investors. Instead of investing through corporations and trust, investors pool together money and look for interested real estate sponsors or developers.
Unline REITs, you cannot sell these investments quickly. Your ability to sell them depends on some real estate market variables. However, by pooling together money with other investors you can achieve handsome dividends on properties that you wouldn’t normally have access to as an individual.
Just keep in mind that it might be some time before an investor can start getting dividends from crowdfunded properties. That’s why you should commit to a long-term goal of at least a few years if you choose to go this route.
Real Estate Investing For Beginners: Platforms To Get Started
There are many options you can choose from for getting started in real estate investing. The first option is Streitwise, a platform you can get started with for a minimum of $1,000. Intermediaries charge many fees, and Streiwise helps you avoid all that by investing directly in properties they have expertly vetted. The founders of Streitwise also have about four decades of experience in the industry.
The second alternative is Fundrise, a great option when you want to keep your initial investment low. You can get started with the platform for as little as $500.
The last option is RealtyMogul, a good choice for those who wish to invest more than $1,000. This option lets you contribute to REITs with vastly different earning potentials.
4. Invest in Vocational and Short-Term Rentals
If you don’t wish to buy a property or go through the stock market, you can still make money by renting out your own rooms within your household.
If you live in a hot tourist destination or an urban city, you can easily start making money with platforms like Airbnb or Vrbo. The best part is you won’t need a lot of money to get started: just some extra space. These platforms take care of all management for you, like handling renter complaints, damage protection, finding tenant matches, etc.
You can view these rentals as a full-time gig or side hustle. You work to maintain the property, perform some furnishing, ensure that it’s up to code, and communicate with renters.
However, if you would like to handle everything in-house, consider advertising locally through sites like Craigslist. Remember to check local laws to ensure that you are following regulations. Some states and cities are cracking down on the rental market because of the rising housing costs.
5. Join Real Estate Investment Groups
Similar to crowdsourcing, you can also join the residential real estate market without the hassle of landlords through investment groups. In a real estate investment group, investors with the same goal pool their resources and purchase residential properties such as condos or apartment buildings through a more prominent company. The company handles tenant management and maintenance, and they get a share of the rental income. These investments are like mutual funds on a small scale.
Each investor also owns different units in multifamily housing. The group becomes a legal entity, and each member becomes a joint owner. The advantage of this option is that many groups pool a share of the rent income so that investors can still get some money when their unit is empty.
6. Flip Real Estate
As you get more familiar with real estate investing, you’ll gain a significant amount of confidence. If you are ambitious enough, you can embark on flipping or trading real estate. With dedication, you can become very wealthy in a short amount of time.
Real estate flipping is when an investor purchases a low-value residential property, makes renovations, and then sells it for a higher price. However, some investors are pure property flippers who don’t renovate their purchases and just wait until the market improves. But for this to work, a property needs to already be in good condition.
Of course, selling the property isn’t guaranteed. You are responsible for the mortgage if you can’t find buyers or tenants. Nonetheless, this option is perfect for seasoned investors who understand their local market very well.
The first thing you must do when you want to flip or trade real estate is to learn about the design, structural integrity, and building codes in your area. You will need to estimate the time the renovation would take, the cost of materials, and other variables. Because of all the risk and intricacies that go into real estate flipping, you should not start with this approach unless you have a mentor guiding you along the way.
There are many reasons why you should invest in real estate. For starters, real estate investing helps in achieving equity. When you pay your mortgage, part of that money goes toward paying down the property’s value while the rest goes towards paying for interest. When you invest in rental properties, the income you get from the rental will help pay the mortgage. With your profit, you can start investing in maintenance, repairs, and other upkeep.
Real estate also offers you leverage in the sense that you can acquire real estate at a fraction of the full cost. By paying a portion of the total price, you can still enjoy all the benefits of owning the property like rental income, property appreciation, build-up equity, and tax write-offs.
Real estate investing can be a great way to go if you want an early retirement. Remember, this investment strategy isn’t a get-rich-quick scheme, nor is it an easy thing to do. It takes time, ambition, and flexibility for it to work correctly. However, the sooner you start investing in real estate, the closer you get to your goal of financial freedom.
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