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. This article will show you exactly the best four ways to invest in real estate so you can start creating real estate wealth.
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 where you can assume that stable economies will safeguard the value of assets or real estate. Do not forget that no market is immune from a recession.
When you own real estate, the chances of the value increasing over the years are very high. We focus on real estate investments because if you buy a house today, it will most likely be there 30 years from now (unless there is a natural catastrophe). And… Statistically, your property price will most likely increase year after year.
Looking for low-risk when looking for ways to invest in real estate
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 real estate market risks are lower than 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:
Real estate rent allows us to obtain income from it in a shorter period than the sale. If you are getting started, the best alternative is to buy a multi-family home where you can live in one unit and rent the others to help you pay your mortgage. In the future, you can move to the single-family home you desire and rent the entire multi-family home. By doing this, you’ll start generating real estate wealth.
It is also a good idea to make an initial investment to increase the asset’s value when renting it. That initial investment refers to any type of remodeling of the property. Or perhaps you buy a single-family home and make it a multi-family home by doing some remodeling. However, it is important to consider the costs associated with the remodeling versus what you’ll be able to charge for rent. Numbers are crucial to make the best decision that will bring you a bigger return on investment.
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 and make repairs to increase the value.
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. And if you need help finding the right investment property, we are here to help you.
There is another way to invest in real estate with long-term rental of commercial premises. It is an investment that generates high cash flows and hardly gives administration work.
Commercial rental terms are much longer but usually takes longer to find a tenant. It all comes down to what you prefer and what works best for you.
Types of Leases:
- Some leases involve the tenant paying for everything, including repairs and maintenance. They are responsible if anything breaks down in the unit.
- 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. For example, if the fridge doesn’t work, you’ll have to find and pay a technician to fix it.
- The rental terms are very different for commercial premises, and the terms and interest rates vary.
Rent only keeps increasing, so this is a plus factor if you choose to buy a multi-family and rent the other units.
[Related Article: Boston Average Rent Prices Going Up Continues To Aggravate]
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 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.
The goal is not to lose sight of the finances. 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 to this type of business. Cash flow is essentially the movement of money. The net amount that enters and leaves your account generates a negative cash flow if the expenses are higher than the income. Conversely, it generates a positive cash flow if 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.
[Related Article: What Not to Fix When Selling a House?]
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. However, selling multiple properties differs from selling numerous products at lower prices—It’s indeed 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 financial means. 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.
Real Estate Investment Trusts or real estate investment funds are colossal investment companies 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 for 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 most common ways to invest in real estate do not hesitate to contact me if you want to start the process today. We help people create wealth through real estate; you could be the next person.
Contact me here or call me at (617)-729-2967.