Real estate investment can be lucrative, if not glamorous. It can be an additional income stream and a longer term investment.
The trouble is that many new investors don’t know where or how to invest in real estate. So here are four options, ranging from high maintenance to low.
1. Invest in rental properties
If you find a property that is in decent shape and has the features renter want like 3 bedrooms, no busy street and a good school district, renting may work for you as a real estate investment. Find a good Realtor (like me) who will help you with real estate investment by calculating the market value of the property based on recent sales and the going rate for similar rentals. You will also need an estimate of income and expenses to see if you will make money and a projection of market value in the future of your real estate investment. Again, I can do that for you.
Find a real estate investment with combined expenses lower than the amount you can charge in rent. And if you don’t want to be the person who shows up with a tool belt to fix a leak — or even the person who calls that person — you may need to pay a property manager.
You will also need a good lease and background check procedure for your real estate investment. Again, I can help with that.
2. Fix up and resell properties
I hope you don’t believe everything you see on HGTV when it comes to real estate investment. You purchase an underpriced home in need of a little love, renovate it as inexpensively as possible and then resell it for a profit. Called house flipping, the strategy is a wee bit harder than it looks on TV.
Estimating the time and cost to do repairs is critical. You may want to find an experienced partner. Maybe you have capital or time to contribute, but you find a contractor who is good at estimating expenses or managing the project. It is a good idea to start your real estate investment buying homes that need cosmetics but no big renovations. That will cut your risk.
The other risk of flipping is that the longer you hold the property, the less money you make because you’re paying a mortgage 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.
3. Where Do You Get The Money To Buy Your Real Estate Investment
If you’re familiar with companies such as Prosper and LendingClub — which connect borrowers to investors willing to lend them money for various personal needs, such as a wedding or home renovation — you’ll understand the concept behind investing through a real estate crowdfunding site.
Companies including RealtyShares and RealtyMogul 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. This and other sources are called “hard money sources”. Hard money simply means that they mostly judge you based on the value of the hard asset or real estate and not your credit. Having experience renovating real estate investment homes is a plus or even a necessity with some sources. I hate to tell you again, but I can help you find a source of funding for your real estate investment.
These kinds of sources are called “hard money”. It means that the lenders rely more on the “hard asset” – that is the actual real estate than on your credit. Experience at renovating homes is a plus and in some cases necessary. I can help you find sources for funding your real estate investment.
REITs, or real estate investment trusts, allow you to invest in real estate without the physical real estate. Often compared to mutual funds, they’re companies that own commercial real estate such as office buildings, retail spaces, apartments and hotels. REITs tend to pay high dividends, which makes them a good investment in retirement. Investors who don’t need or want the regular income can automatically reinvest those dividends to grow their investment further.
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 an online broker.
There are other ways to make a real estate investment including wholesaling which requires neither time nor money. I will be discussing these in future articles.
If you have any questions on real estate investment, contact Tony Delisi at RE/MAX Unlimited Northwest 847-471-7177 or [email protected] Visit my web site at www.tonydelisi.com or my Facebook investor group at https://www.facebook.com/groups/348560988910800/