Ways to Invest in Real Estate
Surely you have wondered a couple of times about the different ways to invest in real estate. Real estate has always stood out as an active refuge within investment portfolios. Investors preparing for a crisis tend to look for safe places to protect their wealth, such as bonds, gold, or cash, and the real estate sector is a very desirable one.
In a time of economic uncertainty globally, this is a place where you can assume that stable economies are going to safeguard the value of assets or real estate. Do not forget that no market is immune from a recession. However, the ingrained belief that we all need a place to live gives the real estate market strength in the face of economic recessions. If these assets are seen as risk hedges because of low returns expected in the rest of the portfolio’s assets, this would explain the increase in the flow of investments into real estate over the last year.
Looking for low risk
To invest in real estate, each person’s risk profile plays a significant role; because each form of investing in real estate carries particular risks and associated returns.
«Higher profitability generally involves higher risks.»
The risks in the real estate market are the same as in financial instruments such as stocks or bonds. However, unlike the latter, where periodic income is expected, the gain in real estate is generated in the final valuation, which must always be above the initial investment.
This brings us to our list that will explain the 4 ways to invest in real estate:
The rent of a real estate allows us to obtain income from it in a shorter period than the sale. However, we must consider the costs associated with maintenance and repairs. It is also a good idea to make an initial investment to increase the asset’s value when you rent it. That initial investment refers to any type of remodeling of the property.
The property’s location plays a vital role in determining the rental price. A property that is well connected and close to public transportation could generate better income and would be easier to rent than one that is not.
When you invest in real estate by renting long-term, you need to focus on cash flow. The best way to get a lot of cash flow is to buy properties below market value, make repairs to increase the value, and choose homes that provide high returns relative to the purchase price. It is not easy to find properties like this, but you have to look for them because they are on the market.
There is another way to invest in real estate with long-term rental of commercial premises. It is a type of investment that generates high cash flows and hardly gives administration work. Commercial rental terms are generally much longer and can take longer to find a tenant.
Types of leases:
- Some leases consist of the tenant paying for everything, including repairs and maintenance.
- Other leases mean that the landlord will have to pay for almost everything, including conversion/remodeling of the property to the needs of the tenants.
- The rental terms are very different for commercial premises, and the terms and interest rates vary.
2. Flipping Houses or “Remodel and Resell.”
It consists of purchasing a used house or apartment through an auction to remodel it and later sell it at a higher price. It is a great way to invest in real estate, but it requires work and experience.
Also, it is an investment that can become very profitable if you count on time, dedication, and patience to find the best real estate offers and the vision of knowing how to choose the most profitable property. It’s crucial to consider the initial value of the investment, the maintenance and remodeling expenses, and the price at which you can sell it.
It would help if you did not lose sight of accounting. It is necessary to keep a good record of each of the costs associated with the remodeling and subsequently sell the houses as soon as possible.
Cash flow is the key in this type of business. Cash flow is essentially the movement of money. The net amount enters and leaves your account, generating a negative cash flow (which means that the expenses are higher than the income) or a positive cash flow (which means that your income exceeds your expenses).
There are many ways to invest in real estate with different cash flows. Some choose to invest in cash, but others use leverage banking. All this affects the cash flow of your investment, so it is essential also to have good knowledge of financial matters or at least be well advised on the subject.
Wholesale real estate is a short-term business strategy that investors use to make big profits. Contrary to what you might think, wholesaling real estate has nothing to do with wholesaling. Wholesalers sell many products to a retailer, and the retailer then repackages the products to sell them to consumers at a much higher price.
Due to the volume of goods sold to the retailer, the wholesaler may charge the retailer a much lower price. Selling multiple properties is not the same as selling numerous products at lower prices—a completely different fish pot.
In this strategy, the wholesaler contracts a house, usually a house in distress, with a seller, stores close to potential buyers, and then assigns the contract to one of them.
Instead of buying and selling a home, a wholesaler signs a contract with the seller and finds an interested party in purchasing the property.
Real estate wholesaling aims to sell the home to an interested party before closing the contract with the original owner. This means that there are no money exchanges between the wholesaler and the seller until the wholesaler finds a buyer.
So how does the wholesaler make money? He makes a profit by finding a buyer willing to buy the house at a higher price than the buyer agreed. The buyer pays the profit’s price difference, which remains with the wholesaler.
Wholesale real estate is best suited for people who want to start a business but don’t have the finances. One of the best things is that you don’t need to take a course, pass an exam, or get a real estate license to become a wholesaler. If you have great people skills and are moderately patient, wholesaling might be right for you.
4. REITs a new alternative
REITs emerged in the United States in 1960 as a formula for small investors to access the real estate sector, which until then was limited to large capitals.
A vehicle was created that could be invested in similar stock to achieve this. The first REIT, Continental Mortgage Investors, began trading on the New York Stock Exchange in 1965. Since then, it has been a growing type of investment.
The Real Estate Investment Trust or real estate investment funds are colossal investment companies (or trusts) that generally exceed $ 100 million and aim to invest and manage real estate. The properties they invest in are varied, from shopping centers and apartment towers to hospitals and warehouses. These companies generally issue shares on the stock market that you can buy if you want to invest in them.
They are investments that tend to rise in the long term. This is verified with the MSCI US REIT index (which groups the performance of the 150 largest REITs), which has had a commission of 15% per year in the last five years. If you compare it with the S & P500 index (the most popular stock index in the United States), it has only performed 10% per year.
If you don’t have enough money to pay a down payment on a property, this is not a problem for REITs since you can invest in their shares with only $20 a week.
Publicly traded REITs are liquid, so you can sell the stock and get out of trouble when you need the cash.
You have the benefits of diversification: because you not only invest in a single house but, simultaneously, your money is placed in many different types of properties to minimize long-term risks.
There is more than one way to invest in REITs, like when you invest in stocks; buy REIT shares, invest through ETFs, and invest through specialized mutual funds.
Now that you understand the ways to invest in real estate do not hesitate to contact me if you want to start the process today. I’m here to help you!
Contact me here or call me at (617)-729-2967.