How to Invest in Real Estate: 5 Ways to Get Started

Are you tired of living paycheck to paycheck and looking for a way to make some extra cash? Investing in real estate might just be the answer you’re looking for.

Sure, being a landlord isn’t exactly glamorous, and nobody enjoys dealing with overflowing toilets and pests. But the truth is, real estate investing can be a lucrative and rewarding venture. Plus, with interest rates on the rise, there’s never been a better time to get started.

One of the best things about real estate investing is that it can help diversify your investment portfolio and provide a passive income stream over time. And the best part? You don’t have to deal with tenant issues all the time.

However, getting started with real estate investing can be overwhelming, especially if you’re new to the game. But fear not, because we’ve got you covered. Here are 5 of the best ways to make money in real estate and start building your wealth.

1. Buy a REIT

If you’re looking to invest in real estate but don’t want to deal with the hassle of owning physical property, investing in a Real Estate Investment Trust (REIT) might be the way to go. 

REITs are companies that own and manage commercial real estate properties such as office buildings, retail spaces, apartments, and hotels. Investing in REITs is similar to investing in mutual funds, as they tend to pay high dividends and can be a good addition to a retirement portfolio. You can choose to receive regular income or reinvest the dividends to further grow your investment.

As with any investment, there are risks involved. The type of REIT you choose to invest in can greatly impact the level of risk you’re taking on. Publicly traded REITs are more easily sold and valued, making them a better choice for new investors. Non-traded REITs, on the other hand, can be harder to sell and value, and may not be suitable for everyone.

To invest in REITs, you’ll need a brokerage account. You can open one in less than 15 minutes, and many companies don’t require an initial investment. However, the REIT you choose to invest in will likely have its own investment minimum.

Another option is to invest in a fund that holds interests in multiple REITs. You could do this through a real estate exchange-traded fund (ETF) or by investing in a mutual fund that holds shares of several REITs. This can help diversify your investment and reduce your overall risk.

Overall, investing in real estate through REITs can be a good way to diversify your investment portfolio and potentially earn high dividends. If you’re unsure about which type of REIT to invest in or how to get started, consider speaking with a financial advisor.

2. Use an online real estate platform

Real estate investment platforms are a new way for investors to connect with real estate developers to finance projects. They connect real estate developers to investors who want to finance projects, either through debt or equity. Investors hope to receive monthly or quarterly distributions in exchange for taking on a significant amount of risk and paying a fee to the platform.

Like many real estate investments, these platforms are speculative and illiquid, meaning you can’t easily unload them the way you can trade a stock. However, they also offer the potential for high returns.

The catch is that many of these platforms are open only to accredited investors. Accredited investors are defined by the Securities and Exchange Commission as people who’ve earned income of more than $200,000 ($300,000 with a spouse) in each of the last two years or have a net worth of $1 million or more, not including a primary residence. If you don’t meet those requirements, there are alternatives available such as Fundrise and RealtyMogul.

Overall, real estate investment platforms offer a unique way to invest in real estate, but they come with a significant amount of risk and are usually only available to accredited investors. 

3. Invest in residential rental properties

Investing in residential rental properties can be a great way to take your real estate investing to the next level. One of the biggest advantages of investing in residential rental properties is that the marketplace standards are well-known and the market may be easier to gauge compared to commercial properties.

Residential properties may also require a lower investment to get started, making it more accessible to new investors. For example, you may be able to get into a single-family home with $20,000 or $30,000, compared to hundreds of thousands required for a commercial property. Additionally, distressed properties via foreclosure may offer even more attractive deals.

One downside of investing in residential rental properties is that it typically requires a sizable down payment of around 30 percent of the purchase price, which may be prohibitive for some investors.

Another potential downside is the management of the property, including the need to make decisions on upgrades and maintenance. Being a landlord can also be a more active and time-consuming activity than passive investing. And if tenants don’t pay rent, the landlord is still responsible for the mortgage payments, which can be challenging.

One way to reduce the down payment and management challenges is to buy a rental property in which you also live. This allows you to qualify for owner-occupied financing, which typically requires a lower down payment. Additionally, you’ll be on site to manage the property and make any necessary upgrades or repairs.

Although investing in residential rental properties can be a lucrative and rewarding experience, it requires careful consideration of the risks and rewards. Make sure to do your research, assess your financial situation, and be prepared for the responsibilities of being a landlord.

4. Consider flipping houses

House-flipping has become a popular way to invest in real estate, but it requires a sharp eye for value and operational expertise. 

The biggest advantage of house-flipping is that it allows investors to turn a profit more quickly than being a long-term landlord. House-flippers typically find undervalued properties that need cleaning up or renovations. They make the necessary changes and then sell the property for market value, profiting on the difference between their all-in price (purchase price, rehab costs, etc.) and the sales price.

To succeed in house-flipping, investors need a sharp eye for what can be fixed at a reasonable price and what cannot. They also need to estimate what a house can be sold for in the future. If these estimates are inaccurate, their profit may quickly evaporate or turn into a loss. Additionally, a home may not sell quickly, and the investor may be stuck paying interest on a loan until a buyer can be found.

House-flipping can be a risky investment, as it requires more expertise and operational skills than other types of real estate investing. Moreover, the investor’s profit margins can be slim, and unexpected costs can quickly eat into any potential profits. There’s also the risk that the market can shift, and the investor may not be able to sell the property for their desired price.

Although house-flipping is not for everyone, it can be a great way to turn a quick profit if done right. If you’re interested in this type of investment, be sure to do your research and understand the expertise required to be successful.

5. Rent out a room

Real estate investing can be a great way to build wealth, and renting out part of your home can be a low-risk way to start. By renting out a spare room, you can reduce your housing costs and potentially increase the value of your property. It can also be an opportunity for younger people to make a mortgage payment more attainable.

However, it’s important to be aware of the potential downsides. Sharing your living space with others means dealing with household issues that may arise, and legal requirements for renting out a room may vary depending on your location. 

If renting out a room doesn’t sound like your cup of tea, don’t worry. There are other ways to invest in real estate without actually owning property. You can check out REITs or crowdfunding platforms, which allow you to invest in real estate without having to deal with the hassle of managing a property.

At the end of the day, renting out a room can be a great way to start your real estate investing journey and lower your housing costs. Just make sure to do your homework and weigh the potential risks and rewards.

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