By Mariia Kislitsyna Updated on February 17, 2022
For many aspiring investors, starting to invest in real estate might seem like an arduous and confusing venture. Some think that you either have to have millions (if not billions) of dollars to buy up as many luxurious apartment buildings as possible or be a persnickety landlord who rents out a second condo left to him by his departed grandaunt.
While this can be true in some sporadic cases, usually, you don’t have to possess massive capital or even a property itself to become a real estate investor and enjoy all the perks of this lucrative field. Here are some ideas on how to invest in residential real estate if you’re new to the whole thing!
If you are interested in real estate investing but don’t want to deal with, well, the fuss of real estate, you should consider investing in REITs, which stands for real estate investment trusts. The whole process on your side is similar to investing in a stock, and you can trade REITs on any major exchange market.
A corporation that collects money from multiple investors later uses the funds to purchase and run the real estate properties. In accordance with U.S. law, the corporation is obliged to pay no less than 90% of its taxable income in dividends to investors, so, as you can assume, REIT has the potential for a high yield. However, taxes on earnings are usually higher than trading regular stocks. Another perk that REIT offers compared to many other real estate investment options is liquidity — you can sell your shares anytime!
If you’re new to the whole thing and want to test the waters, you will be dealing with the publicly-traded real estate investment trusts, but there are also non-traded REITs and private REITs which require much more commitment and capital to start with.
Online real estate platforms are another alternative to REITs if you simply want to invest your money into real estate without committing to the particular property. The way these platforms function is pretty straightforward if you’re familiar with the crowdfunding principle. These platforms connect real estate developers with investors that pool their money together to fund the project.
Real estate crowdfunding platforms let you feel like a part of a bigger real estate investment enterprise. What’s more, you can specifically choose properties, both commercial and residential, to invest in. You can even follow the progress of each investment!
Obviously, there are some downsides you should be aware of before committing to real estate crowdfunding. One of them is the illiquidity of your assets — you won’t be able to withdraw easily; also, you’d have to pay management fees to the platform. Many of the platforms require significant initial investments, similar to private REITs; however, you can find some options such as Fundrise, that require as low as $500 to start.
Short-term rental is another excellent way to start investing in real estate. It might be worth considering if you have a spare room in your place or travel a lot and think about making some money on real estate, especially if you feel like the abovementioned options are not your cup of tea.
Perhaps, you’ve already rented a place for a short-term yourself and know the drill; if not, you most definitely heard of platforms like Airbnb where you can rent your own home for a few days if you go on a vacation.
This option has a few advantages worth mentioning. First of all, you can work with what you already have, no extra expenses needed. Also, you will receive your first money much faster than if you invest in REIT or use investing platforms. Short-term renting will still require some time and commitment, but you can back out of it anytime. Finally, it can be a good test for you if you think of buying a place to rent one day.
Now, here comes the most common investment option that comes to one’s mind when speaking of real estate. Many people decide to buy an extra apartment and rent it out to long-term tenants as a source of guaranteed monthly income. For some people, buying the first rental place becomes the initial step to becoming a full-time real estate investor with multiple properties around the city or even country!
Surely, rental property involves a lot of attention and effort. You’d have to be in charge of everything, from finding a reliable tenant to taking care of any repair work that will be needed along the way. But if it seems like too much work, you can always entrust maintenance to the property manager (for an extra fee, of course) and use some dedicated platforms to display your condo.
House flipping might seem like a perfect option for a person who has an unfulfilled artistic vein and have a good understanding of the real estate market in the area. The idea behind it is to buy an underpriced property, zhuzh it up, and resell it for a higher price. Sometimes there is even no need to renovate or redecorate the apartment — an experienced and lucky real estate investor, a so-called pure flipper, can buy a house when the market is extremely low only to sell it later for a much bigger sum.
Property flipping can be a risky enterprise, as you have to understand the market, know in advance the approximate cost of the repairs, and the price you could potentially sell the apartment for. Additionally, you need to keep in mind the mortgage you’d have to pay during your search for a potential new buyer.
These five options are the most common ways to start investing in real estate. Some of them are less risky; others require less initial capital. But there is one common element among all of them — if you are going to invest in real estate, you should continually educate yourself about the market and listen to your gut!
And, to navigate through the pitfalls of the real estate market with ease, check out the best ideas on where to invest in the U.S. major cities:
– San Diego
– New York City
– Los Angeles
– Jersey City
– Fort Myers
Author Bio: Mariia Kislitsyna serves as an editor and writer for the Rentberry and Landlord Tips Blogs, dedicating the majority of her time to finding great new cities and interesting real estate information to write about. As a polyglot and literature fanatic, she also enjoys writing about culture, travel, and career, and she’s been featured in and written for a variety of publications across the web.
Mariia serves as editor-in-chief and writer for the Rentberry and Landlord Tips blogs. She covers topics such as landlord-tenant laws, tips and advice for renters, investment opportunities in various cities, and more. She holds a master’s degree in strategic management, and you can find her articles in such publications as Yahoo! Finance, Forbes, Benzinga, and RealEstateAgent.
Thanks for sharing this valuable information!