As an investor, you may already have a financial portfolio that is brimming with stocks and bonds. Take it further and amplify your returns within a few years by investing in real estate.
Start with our guide to make an informed transition to real estate investment.
Choose a Real Estate Investment Location
When it comes to real estate investing, location has the biggest impact on your returns. Resist the urge to settle on properties around your immediate vicinity. Research the property price, rental rates and occupancy rates before investing. Make sure you also go through the price of the property over the last few years to determine its appreciation in the market.
These facts and figures can help you assess the value of your real estate investments. Do your due diligence and pick a strategic location that’s profitable.
Plan an Investment Strategy
There are 2 general categories of real estate investment – active and passive. Depending on your financial needs, you can invest in real estate properties accordingly.
Passive Real Estate Investing
If you are new to investing in properties, passive real estate investing may be a better choice for you. Passive real estate investing involves buying small units of real estate properties. These shares give you a fixed rate of return on your investment.
Based on your financial goals, you can consider these methods of investing.
- REITs: Many companies finance and manage real estate investment trusts (REITs). REITs are low-cost investments that can boost your stock portfolio. You can own shares of multimillion-dollar residential and commercial real estate properties through REITs. These companies have full control over which properties to invest in. You can’t pick specific properties to invest in yourself.
The rent collected from these high-profile properties goes into paying dividends to investors. These payments are usually done at the end of a month or a quarter. You can check out our guide on how to invest in REITs for more information.
Source – FINRA.org
- Crowdfunding: Crowdfunding companies are online businesses that pool money from people to invest in real estate. These online platforms allow you to directly invest in properties. These platforms have a limited number of properties to choose from. You can go through these websites to find specific information on the properties. These details include the location, rental agreements and rate of return.
Most popular among the crowdfunding platforms are Fundrise, CrowdStreet and DiversyFund. To sign up for an account on these crowdfunding platforms, you may need to deposit a small amount of money as minimum balance.
Active Real Estate Investing
If you’re a professional investor, active real estate investing can provide better results. With considerable capital and time at your disposal, you can make huge profits. This type of investing involves a hands-on approach. You must increase its value by upgrading facilities before selling it at a higher price.
This can be highly-volatile due to maintenance costs and unforeseen expenses. Based on your risk profile, you can consider these methods of investing.
- Property ownership: You can outright buy a property and manage it by yourself. Although this sounds appealing to an investor, it’s not the most workable option. To begin with, you will have to find low-cost properties in prime locations. These locations should have high occupancy rates.
Property ownership also means more responsibility. Be prepared to take time out of your busy schedule for routine upkeep and repairs.
- House flipping: In real estate investing, house flipping is a common strategy. It involves buying a property for a low cost, refurbishing it and selling it at a higher price.
A successful house flip can earn you profits in less than 6 months or a year. Be careful while calculating your expenses for renovating the house. These expenses can accumulate and eat away at your profit margin after the sale.
- Wholesaling: Wholesaling involves buying distressed houses and selling them to house flippers. This method is less of a hassle compared to house flipping. Unlike house flipping, you are only responsible for selling the house. The house is then refurbished and resold for a higher profit margin.
Having a well-connected network of real estate agents is crucial to wholesaling. The biggest challenge with this technique is finding people who are willing to sell a house below the market price of the property.
Pick an Investment Property
The real estate industry is diverse. It offers many different types of properties to invest in such as:
- Residential properties: These properties include single-family homes, multi-family housing, apartments and condominiums. In some cases, it can also include villas and vacation homes. After you have secured the funding, you can find suitable tenants to occupy it. Regular rents can be the easiest sources of income. But the managerial costs of the house during vacant periods can turn into a financial strain.
- Commercial properties: These properties include malls, hotels, retail stores, office spaces and restaurants. Occupied by businesses and organizations, commercial properties tend to generate a much higher income through rent. These rental agreements can last for years, solidifying your long-term returns.
- Industrial properties: These properties include research centers, warehouses, storage facilities and manufacturing facilities. Industrial areas need the least maintenance and involve no construction costs as an investment.
- Agricultural properties: These properties are generally vacant lands used for farming and livestock. Many investors buy farms for cultivating cash crops such as coffee, corn and rice.
Manage Your Investment
Once you have decided on the property type, management is your next biggest concern. These tasks can range from screening tenants, collecting rent, security, maintenance and roofing.
Some investors hire property management companies to take care of these needs. But doing so will mean an added managerial fee to your real estate expenses.
Earn Income from Real Estate
Take advantage of the amazing capacity of real estate investments to produce income. Regular rents can beat the performance of traditional real estate stocks. Don’t miss your chance to expose your portfolio to real estate earnings.
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