Five Ways to Start Investing in Real Estate

 

Your portfolio can become more diversified by including real estate investments, and you can enter the market by simply purchasing a mutual fund.

If you've ever had a landlord, it's likely that you don't ever want to be one: It doesn't seem like the most glamorous profession to take calls about large bugs and overflowing toilets.

When done properly, real estate investing can be profitable even if it isn't glamorous. It might be a second source of income and assist diversify your current investment portfolio. Additionally, many of the best real estate investments don't necessitate attending to a tenant's every need.

Problematically, a lot of novice investors have no idea where or how to invest in real estate. Here are some of the top, from low maintenance to high maintenance, real estate investment ideas.

Best real estate investment strategies 

1. Purchase REITs (real estate investment trusts)

You can invest in real estate through REITs even if you don't own any actual property. They are businesses that own commercial real estate, such as office buildings, retail spaces, apartments, and hotels. They are frequently compared to mutual funds. Due to their propensity for paying substantial dividends, REITs are a popular choice for retirement investments. Investors can automatically reinvest those dividends to increase the value of their investment if they do not want or desire the regular income.

2. Employ a real estate investing website

You'll understand online real estate investing if you're familiar with businesses like Prosper and LendingClub, which pair borrowers with lenders eager to lend them money for various personal needs, like a wedding or house remodeling.

These online marketplaces link investors and developers of real estate who are interested in financing deals with debt or equity. Investors take on a lot of risk and pay a fee to the platform in exchange for the chance to get monthly or quarterly payments. These are speculative and illiquid investments, like many real estate ones; you can't quickly sell them off like you would a stock.

3. Consider purchasing rental property.

When Tiffany Alexy purchased her first rental property at the age of 21, she had no intention of becoming a real estate investor. She was a senior in college in Raleigh, North Carolina, and had plans to attend graduate school there. She reasoned that purchasing would be preferable to renting.

"I searched Craigslist and discovered a four-bedroom, four-bath condo that was furnished in a manner reminiscent of student accommodation. I purchased it, lived in one bedroom while renting out the other three, says Alexy.

Alexy entered the market using a technique known as "house hacking," which was coined by the online resource for real estate investors BiggerPockets. By renting out rooms, as Alexy did, or apartments in a multi-unit building, you are essentially occupying your investment property. According to David Meyer, the site's vice president of data and analytics, investors can use house hacking to purchase a building with up to four units while still being eligible for a residential loan.

4. Think about renovating investment houses.

This is HGTV in real life: You buy a cheap house that needs some work, renovate it as cheaply as you can, and then sell it for a profit. The tactic, known as house flipping, is a little more difficult than it appears on television.

Because so much of the arithmetic involved in flipping needs an extremely precise estimation of how much repairs would cost, which is not a simple thing to accomplish, there is a greater degree of risk, according to Meyer.

Find a partner with experience, he advised. "Perhaps you have resources to contribute, like money or time, but you locate a contractor who is strong at budgeting or project management," he says.

5. Hire out a space

Finally, you may rent out a portion of your house to dip a toe in the real estate waters. A similar arrangement would enable people to continue enjoying the benefits of property value appreciation while also significantly reducing housing costs.

Older adults may find this to be very significant. A quarter of persons 65 and older who lived alone in 2016 spent more than half of their income on housing, according to research from Harvard University's Joint Center for Housing Studies. For older persons who shared a room, that percentage fell to 12.9% [1].

Adding roommates can also make that mortgage payment more attainable for younger people. But if you're not sure you're ready, you could try a site like Airbnb. It’s house hacking for the commitment-phobe: You don’t have to take on a long-term tenant, potential renters are at least somewhat prescreened by Airbnb, and the company’s host guarantee provides protection against damages.

Renting out a room feels a lot more accessible than the fancy concept of real estate investing. If you've got a spare room, you can rent it.

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.