5 Easy Real Estate Investing Strategies

TABLE OF CONTENTS 

• Rental Properties
• Investment Groups (REIGs)
• House Flipping
• Investment Trusts (REITs)
• Online Real Estate Platforms
• The Bottom Line

Purchasing and owning real estate may be a rewarding and profitable financial option. Prospective real estate owners, unlike stock and bond investors, can utilize leverage to purchase a property by paying a percentage of the total cost ahead and then repaying the remainder, plus interest, over time.

While a regular mortgage typically demands a 20% to 25% down payment, in some circumstances a 5% down payment is all that is required to purchase an entire house. This capacity to own the asset immediately after the documents are signed empowers both real estate flippers and landlords, who can then take out second mortgages on their residences to make down payments on more properties. Here are five major ways for real estate investors to profit.

KEY TAKEAWAYS

• Aspiring real estate investors can use leverage to purchase a property by paying a percentage of the entire cost upfront and then repaying the balance over time.
• One of the most common ways for real estate investors to profit is to become landlords of rental properties.
• Flippers, who buy discounted real estate, fix it up, and resell it, can also make money.
• Real estate investment groups are a less hands-on way to profit from real estate.
• REITs (real estate investment trusts) are essentially dividend-paying equities.

1. Rental Properties

Individuals with do-it-yourself (DIY) and renovation abilities, as well as the patience to manage tenants, may find that owning rental properties is a terrific opportunity in Karaikudi. This technique, however, necessitates significant money to cover up-front maintenance costs and to fill unoccupied months.

Pros

• Regular income is provided, and properties can rise in value.
• Leverage is used to maximize capital.
• There are numerous tax-deductible connected expenses.

Cons

• Managing tenants can be time-consuming.
• Tenants may cause property damage.
• Income loss as a result of prospective vacancies

According to U.S. Census Bureau data, the value of new home sales (a rough measure of real estate values) grew steadily from 1940 to 2006, before falling during the financial crisis. Following that, sales prices began to rise again, eventually approaching pre-crisis levels. 12 It remains to be seen how the coronavirus epidemic will affect real estate values in the long run.

2. Real Estate Investment Groups (REIGs)

Real estate investment groups (REIGs) are suitable for persons who wish to own a rental property but don’t want to deal with the inconveniences of managing it. REIGs necessitate a cash cushion as well as access to finance.

REIGs are similar to small mutual funds in that they invest in rental properties in Karaikudi. In a typical real estate investment group, a firm buys or constructs a series of apartment buildings or condos and then invites investors to buy them through the company, thereby joining the group.

A single investor can purchase one or more self-contained housing units, but the firm running the investment group maintains all of the apartments collectively, handling maintenance, advertising vacancies, and interviewing tenants. The company takes a part of the monthly rent in exchange for performing these management services.

A typical real estate investment group lease is in the name of the investor, and all of the units pool a portion of the rent to protect against vacancy. As a result, even if your unit is vacant, you will receive some money. As long as the vacancy rate for the pooled units does not exceed a certain threshold, there should be enough to cover costs.

Pros

• Renting out your home is less hands-on than owning a home.
• It provides both income and capital appreciation.

Cons

• Vacancy dangers
• Fees are comparable to those of mutual funds.
• Managers that are unscrupulous have a higher chance of succeeding.

3. House Flipping

House flipping is only for those who have extensive knowledge in real estate valuation, marketing, and renovation. House flipping necessitates capital as well as the capacity to do or supervise repairs as needed.

This is real estate fabled “wild side.” Real estate flippers are separate from buy-and-hold investors, just as day traders are unique from buy-and-hold investors. For example, real estate flippers frequently seek to financially sell the discounted houses they acquire in less than six months.

Pure property flippers frequently do not invest in property improvement. As a result, the investment must already have the inherent worth required to earn a profit without any changes, or they will remove the property from contention

Flippers who are unable to quickly sell a home may find themselves in problems since they often do not retain enough uncommitted cash on hand to pay the mortgage on a property over time. This can lead to further, escalating losses.

Another type of flipper earns money by purchasing low-cost houses and increasing value by renovating them. This can be a longer-term investment for those who can only afford one or two residences at a time.

Pros

• Capital is tied up for a shorter amount of time.
• Can provide speedy returns

Cons

• It is necessary to have a more in-depth understanding of the market.
• Unexpected cooling in hot markets

4. Real Estate Investment Trusts (REITs)

A real estate investment trust (REIT) is ideal for investors seeking portfolio exposure to real estate without committing to a traditional real estate transaction.

A real estate investment trust (REIT) is formed when a business (or trust) uses investor funds to purchase and operate income properties. REITs, like any other stock, are traded on the major markets.

To keep its REIT designation, a firm must pay out 90 percent of its taxable profits in dividends. REITs avoid corporate income tax by doing so, whereas a typical company would be taxed on its profits and then have to determine whether or not to distribute its after-tax profits as dividends. 

REITs, like normal dividend-paying equities, are a smart investment for stock market investors seeking consistent income. In comparison to the aforementioned categories of real estate investment, REITs provide investors with access to nonresidential ventures, such as malls or office buildings, that are typically inaccessible to individual investors.

More importantly, because they are traded on an exchange, REITs are extremely liquid. To put it another way, you won’t need a realtor or a title transfer to cash out your investment. In practice, real estate investment trusts (REITs) are a more formalized version of a real estate investment group.

Finally, while considering REITs, investors should differentiate between equity REITs that own buildings and mortgage REITs that provide real estate financing and dabble in mortgage-backed securities (MBS). Both provide real estate exposure, but the nature of the exposure differs. An equity REIT is more traditional in that it symbolizes real estate ownership, whereas mortgage REITs focus on the revenue generated through mortgage financing of real estate.

Pros

• Essentially, these are dividend-paying stocks.
• The majority of core properties are long-term, cash-producing leases.

Cons

• The usual rental real estate leverage does not apply.

5. Online Real Estate Platforms

Platforms for real estate investing are for those who want to join others in investing in a larger commercial or residential venture. The investment is made using online real estate platforms, which are often referred to as real estate crowdfunding. It still necessitates investment capital, albeit less than that required to own houses outright.

Online platforms bring together investors wishing to finance projects and real estate developers. You can diversify your investments with less money in some circumstances.

Pros

• Can put money into a single project or a portfolio of ventures.
• Diversification geographically

Cons

• With lockup periods, it tends to be illiquid.
• Management costs

The Bottom Line

Whether real estate investors use their properties to produce rental income or to wait for the perfect selling opportunity, it is possible to build out a powerful investment program by spending a relatively small portion of the overall value of a property upfront. And, like with any investment, whether the overall market is up or down, there is profit and opportunity in real estate.

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