By Vanessa Saunders, MBA, MIMC , Broker Owner, Global Property Systems
Real estate investment can be a lucrative venture, as well as a good way to add diversity to your current portfolio. Getting into the market can be as easy as buying a mutual fund. The best thing is, you don’t need to be at the beck and call of tenants who need you to fix overflowing toilets or call in the exterminator.
Some advantages of real estate over other investments include:
•Competitive Risk-Adjusted Returns.
•High Tangible Asset Value.
•Attractive and Stable Income Return.
Real estate as an investment has the additional benefits of its ability to both increase in value as well as produce cash flows from rental income or mortgage interest.
Here are four ways to invest in real estate, ranging from low to high maintenance:
1. Real Estate Investment Trusts (REITs).
Pronounced “reets,” these investments let you invest in real estate without actually buying a particular property. Similar to mutual funds, they’re companies that own commercial real estate such as office buildings, retail spaces, apartments and hotels. Many offer high dividends – good for retired investors who favor generating cash over long term growth.
REITS can be varied and complex. Some trade on an exchange like a stock; others aren’t publicly traded. The type of REIT you purchase can be a big factor in the amount of risk you’re taking on, as non-traded REITs aren’t easily sold and might be hard to value. New investors should generally stick to publicly traded REITs, which you can purchase through brokerage firms.
2. Online real estate investing platforms.
These online companies connect real estate developers to investors willing to finance particular projects. Investors expect regular distributions in exchange for taking on often high risk. Like many real estate investments, these are speculative and illiquid — you can’t easily unload them the way you can trade a stock. They can also take a lot of money to get into. They traditionally are only open to accredited investors, those who have an 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.
Some new alternatives for those who can’t meet that requirement include Fundrise and RealtyMogul. Fundrise is a Washington, D.C.-based financial technology company founded in 2010 that operates an online investment platform. Fundrise has been labeled as the first company to successfully crowdfund investment into private commercial and residential properties.
3. Investing in rental properties.
Yes, it sounds like you’ll become a landlord, but with a difference. Known as “house hacking,” it allows you to live in one part of a multi-family investment property while renting out the other units. As long as they live on site, investors can buy a property with up to four units and still qualify for a residential loan.
4. Become a house flipper.
Made popular on HGTV, investors buy an underpriced home in need of sprucing up and re-selling it for a profit. Buying “the worst house on the block” can be a risky venture. Estimating the cost of renovation is key to make house flipping a profitable investment. Anyone who has renovated an older home will agree that minor projects have a way of growing into major ones. You never know what nightmare a previous owner may have patched up or plastered over.
The other challenge to flippers is selling the property quickly. Every month that renovation goes unfinished or the house stands empty is another mortgage payment without bringing in any income. You can lower that risk by living in the house as you fix it up. This works as long as most of the updates are cosmetic and you don’t mind a little dust.
And a fifth way for the risk-averse who don’t mind being kind of a landlord:
5. AirBnB it!
Hardly an investment, but it’s an option if you have a spare room or separate apartment that will bring in some income with little effort or risk.
Online investment advisers at Nerdwallet offer this advice to potential real estate moguls: “Like all investment decisions, the best real estate investments are the ones that best serve you, the investor. Think about how much time you have, how much capital you’re willing to invest and whether you want to be the one who deals with household issues when they inevitably come up. If you don’t have DIY skills, consider investing in real estate through a REIT or a crowdfunding platform rather than directly in a property.”
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