Investing in real estate is a great way to grow your wealth, but it’s not always easy. When you buy an investment property, you have to put in the time to maintain it, deal with tenants, and continue investing money in upgrades and repairs. But buying a property and renting it out to someone directly isn’t the only way to invest in real estate.
In fact, there are many ways to invest in real estate, from buying a single rental property to investing in real estate investment trusts (REITs), real estate investment groups (REIGs), and real estate mutual funds. You could even flip houses. Read on for a closer look at all the ways to get into real estate investing.
Buy a Rental Property
Buying a rental property is what immediately comes to mind for most people when you talk about real estate investing (that, or buying your own home). Buying a property and renting it out to someone is probably the oldest way to invest in real estate, but it can also be very hands-on. You’ll need to do a lot of work to calculate the return on investment (ROI) of the rental property, renovate it to make it more appealing to tenants, find and background check tenants, keep the unit occupied as much as possible, and more. Check out these good renovating type Homes For Sale In Great Falls, Montana that can bring you good rental yields.
However, you can make money on a rental property not just by collecting monthly rent, but also through the appreciation of the property. What is appreciation in real estate? It’s the value that a piece of property gains over time. Ideally, all real estate will grow in value, but it’s possible for real estate to depreciate, or lose value, over time, too. If the unit falls into disrepair or the area loses its caché as a desirable neighborhood in which to live, your property could lose value. And it’s hard to liquidate real property – you can expect it to take months to sell.
Invest in a REIT, REIG, or Real Estate Mutual Fund
A REIT is a trust or corporation that uses investors’ money to purchase, manage, and sell income-producing real estate properties. To qualify as a REIT, a real estate trust must pay at least 90 percent of its profits in the form of dividends to investors. Buying shares in a REIT is a lot like buying shares of stock, but like buying rental property, REITs can offer a source of regular income. You can also cash them out whenever you want, since they’re bought and sold on the stock exchange just like shares of stocks.
A REIG is a little different. A real estate investment group can be thought of as operating like a small mutual fund. The company will buy some buildings, and then allow investors to join the REIG by buying those properties through the company. While investors own the units, the REIG handles all of the property management. All of the units will pool a portion of their rental profits to protect one another from added expenses in the event that a unit goes vacant.
Real estate mutual funds are mutual funds that mostly invest in real estate operating companies and REITs. They, too, are fairly liquid, and offer more diversification than investing in a single REIT or REIG. They also offer the advantage of more guidance from an asset manager in terms of what the fund should invest in.
Flip a House
If you have the money, the time, and the contracting skills, buying a house that could use some TLC and then fixing it up and selling could be a great way to earn a profit on your real estate investment. However, you’ll need enough money not only to buy the house, but to pay for any materials and labor you need to fix it up. You’ll probably need to hire a construction crew unless you have substantial skills yourself – and even then, hiring a crew can help you get the house back on the market faster. Time could be of the essence when trying to flip a house. If the market turns before you can make your sale, you may end up with a rental property instead, and it may not be profitable, depending on how much money you’ve put into the property.
Getting into real estate investing can be scary, but you have options. You don’t have to become a landlord to make money on real estate. Depending on the investment vehicle you choose, you could make substantial profits in real estate without ever renting a property to a tenant.
