If you’ve ever had a landlord, you probably have no desire to become one. Receiving calls about oversized insects and overflowing toilets is hardly the most appealing occupation.
However, if done correctly, real estate investing may be beneficial, even in the current context of rising interest rates. Real estate investment can also assist diversify your existing portfolio and generate additional revenue. And many of the best real estate investments do not necessitate your constant availability to tenants.
The problem is that many new real estate investors do not know where or how to invest. Here are some of the best real estate investment strategies, ranging from low to high upkeep.
Best real estate investment strategies
1. Buy REITs (real estate investment trusts)
REITs enable you to invest in real estate without owning the property itself. Companies that own commercial real estate, such as office buildings, retail spaces, apartments, and hotels, and are sometimes compared to mutual funds. REITs typically provide significant dividends, making them a common retirement investment. Investors who do not require or desire a regular income might automatically reinvest dividends to increase the value of their investments.
Are REITs an attractive investment? However, they can also be diverse and intricate. Some are traded on an exchange like stocks, while others are not. Non-traded REITs are difficult to sell and may be difficult to evaluate, so the type of REIT you purchase can have a significant impact on the risk you assume. New investors should focus on REITs that are publicly traded and can be purchased through brokerage firms.
For this, a brokerage account is required. It takes less than 15 minutes to start a business if you don’t already have one, and many require no upfront investment (though the REIT itself will likely have an investment minimum).
You can also acquire exposure to a broader range of real estate investments by investing in a fund with holdings in numerous REITs. You may accomplish this by investing in a real estate ETF or a mutual fund that holds shares of numerous REITs.
2. Use an online real estate investing platform
Real estate investment platforms provide the connection between real estate developers and investors who wish to finance projects with loan or equity. Investors anticipate receiving monthly or quarterly payouts in exchange for a substantial degree of risk and a platform charge. As with many real estate investments, these are speculative and illiquid; they cannot be sold as easily as stocks.
The catch is that you may require capital to generate income. The Securities and Exchange Commission defines accredited investors as those who have earned at least $200,000 ($300,000 with a spouse) in each of the previous two years or have a net worth of at least $1 million, excluding their primary residence. Fundrise and RealtyMogul are alternatives for those who cannot satisfy this condition.
3. Think about investing in rental properties
When she purchased her first rental property at age 21, Tiffany Alexy had no intention of becoming an investor. As a senior in college in Raleigh, North Carolina, she planned to attend graduate school locally and determined that buying was preferable to renting.
I found a four-bedroom, four-bathroom apartment on Craigslist that was set up as student accommodation. Alexy explains, “I bought it, lived in one bedroom, and rented out the other three.”
The arrangement met all of her expenditures and generated an additional $100 per month in cash — a substantial sum for a graduate student, and plenty for Alexy to catch the real estate bug.
Alexy entered the market utilizing a tactic known as house hacking, a term coined by the online real estate investment site BiggerPockets. It essentially means you’re occupying your investment property, either by renting out rooms, as Alexy did, or by renting out units in a multi-unit building. According to the website’s vice president of statistics and analytics, home hacking enables investors to purchase a property with up to four units and still qualify for a residential mortgage.
Of course, you can also purchase a complete investment property and rent it out. Find one whose total expenses are less than the amount of rent you may charge. And if you don’t want to be the one who shows up with a toolbelt to fix a leak — or even the one who calls that person — you’ll need to pay a property management.
Meyer states, “If you manage it yourself, you’ll learn a great deal about the industry, and if you buy further properties, you’ll have more experience.”
4. Consider flipping investment properties
This is HGTV come to life: You purchase an underpriced home in need of some TLC, renovate it on the cheap, and then resell it for a profit. The approach, called house flipping, is somewhat more difficult than it appears on television. It is also more expensive than it was in the past, considering the increased cost of construction materials and mortgage interest rates. Many house flippers intend to purchase their properties in cash.
Meyer explains, “There is a greater element of risk because so much of the arithmetic underlying flipping involves an exact estimate of how much repairs will cost, which is not an easy task.”
His recommendation: Find a partner with experience. “Perhaps you have funds or time to give, but you find a contractor who is skilled at cost estimation and project management,” he says.
The other risk associated with flipping real estate is that the longer you retain the property, the less money you make because you may be paying a mortgage without generating income. You can reduce this danger by staying in the home throughout renovations. As long as the majority of upgrades are cosmetic and you don’t mind a little dust, this will work.
5. Rent out a room
Finally, you may rent out a portion of your home to test the waters of the real estate market. Such an agreement can significantly reduce housing costs, perhaps allowing people to remain in their houses while continuing to profit from property value appreciation.
Additionally, adding roommates might make mortgage payments more affordable for younger individuals. However, if you are unsure about your readiness, you may try a website like Airbnb. It is house hacking for the commitment-averse: You are not required to take on a long-term tenant, possible tenants are at least partially prescreened by Airbnb, and the company’s host guarantee protects against damages.
The concept of renting a room is far more approachable than that of real estate investment. You can rent out a spare room if you have one.
As with any other investment decision, the finest real estate investments are those that benefit you, the investor, the most effectively. Consider how much time you have, how much money you’re prepared to commit, and whether you want to be the one to deal with inevitable home concerns. Consider investing in real estate through a REIT or crowdfunding platform rather than directly in a property if you lack DIY abilities.