Investing in real estate is one of the best ways to build wealth and diversify one’s portfolio as an investor. While making money off of it can be a bit of a challenge at present, it’s not at all impossible. Rob Thomson Real Estate gets investors in the mindset of the pros with the following real estate investing strategies. Generally, real estate investing methods fall into two main categories, namely:
This method involves an investor purchasing property to use as a consistent source of income (usually by renting it out).
This method involves purchasing a property and letting it appreciate in value before selling it for profit. All the ways of making money in the real estate industry fall under these two categories, and sometimes, both methods can be used at the same time. Further, they can also be broken down into two ways, the easy way and the hard way.
Making Money in Real Estate: The Easier Ways
The more straightforward money-making methods in real estate have something to do with investing in the market. They don’t involve purchasing properties, so there’s no worrying about finding people to rent to. Instead, there should be simple money systems in place.
Online Real-Estate Investing Platforms
These are mobile apps and web-based platforms that allow everyone to be involved in digital real estate investments.
The process is quite simple. The apps connect interested investors to real-estate managers looking to purchase or invest in properties. Once they profit from the investment, investors get a cut of the dividends in exchange for the capital they shell out.
Investors should be aware that the risk involved here is slightly higher since they will only be investing in single property projects. However, for regular investors and those with automated savings and other financial safeguards in place, investing 5%-10% of their portfolio into these projects shouldn’t be too much of a concern.
Finally, it’s important to note that most of these real-estate platforms deal only with accredited investors. Meaning, they would need to have earned over $200K over the past two years or a net worth of at least $1 million.
These are mutual funds made up of pooled investors’ money that are turned into one actively managed fund. They also involve different companies that are actively managing properties.
Further, these investment funds also carry direct investments into real estate properties as well.
What’s good about real-estate funds is that they increase in value through appreciation and don’t just provide investors income in the short term. Once the valuation of the assets increases, the real estate funds gain added value as well.
Once investors are ready to commit, they should search for a well-diversified fund and low-fee fund at the brokerage to invest in.
Real Estate Investment Trusts (REITs)
This method is ideal for those who are looking to make passive income while investing in real estate. It is also a great way to make money from home while doing minimal physical work.
REITs are publicly or privately held companies that own, finance, and handle income-generating companies. They are usually commercial real estate properties, like shopping malls, senior housing, family homes, and many others.
When investing in an REIT, the investor doesn’t actually own the property, but shares within the REIT. In short, it works a lot like mutual funds investment or stocks trading, wherein only the equity or shares in the real estate company is purchased.
What’s good with this method is that it allows even beginner real estate investors to access their assets and receive dividends from each generated income. Also, they don’t need to have a direct involvement in the everyday proceedings of the process. They simply need to monitor developments in the real estate market which can be done from the comfort of their homes.
Making Money in Real Estate: The Harder Ways
These are the more challenging ways to make money in real estate. They present an added challenge since the purchase of an actual property is involved. It usually requires the investor to come up with an initial capital in the five to six figure range, not to mention the cost involved in renovating the property, if necessary.
It isn’t all risk though, for sure. Investors only need to ensure they’re ready for the responsibilities that come with being a property owner.
Renting Out Property
Vacation rentals were extremely popular and a lucrative business, until the outbreak of the coronavirus pandemic. Rental platforms, such as Airbnb, provided an opportunity for homeowners and real-estate investors to create an income off short-term rentals.
At present, those who are dealing with the pandemic are looking for short-term rentals to stay in, either to be closer to their workplace or to self-quarantine from their families while interacting with Covid-19 patients.
The best thing about renting out properties is that their mortgages are usually fixed. Owners can make more money from them every year to pay those mortgages off as they raise rental costs.
Also, depending on the market, it’s likely that there’s a high demand for living space where the property is located. This means the property owner can charge more and gain a higher profit in the process.
Short-term Room Rentals
Though this strategy works best for those who live in a duplex, triplex, or other multi-family homes, it’s also a great venture for owners who have a spare room in their apartment or house. Better yet, an entire home or apartment complex.
Short-term room rentals turn spare rooms into income-generating machines. For them to be a sound investment, owners should ensure that:
- The property is in a prime location, meaning, the area draws customers regularly. It could be situated in a popular tourist destination or near an arena where sporting events are held, etc.
- The listing is attractive enough. This involves the proper advertising of the place, getting good photos of the room, and putting together a listing that will surely hook people in.
Flipping houses involves the buying of properties to sell them at a higher price. It also requires making repairs and renovations on the property in some cases. This could range from small fixes here and there to a full-blown renovation project.
As a result, hiring contractors is the way to go for investors to ensue they get the work done. Sure, it can cost them more, but taking on the work by themselves is a bigger mistake. Not only does it take time and effort, the task also requires a specific set of skills that the investor might not have.
Consequently, house flipping can get very challenging if investors won’t commit to the project full time. Thus, it isn’t recommended for those with full-time jobs as they won’t be able to get away and address the issues with their house at once.
Straight from the Experts
Investing in real estate doesn’t come with a guide map, and the road to making a steady income stream is often winding. With that said, here are additional expert tips to do well in real estate investing, regardless if the investor is a beginner or in their nth income property.
Considering only a small geographic area in real estate investments is truly limiting to any investor’s profitability potential.
Instead of putting all their money in their backyard, it is best to consider making investments in other cities and states as well. Investing across a large geographical area presents a large pool of available investments and ultimately better opportunities.
Join a Local Networking Group
When venturing in real estate investments, it’s an excellent idea to participate in a local networking group. There are literally thousands of real estate investing (REI) groups in the entire country to join and be an active member in.
Investors only need to select the group with the people and topics that they’re interested in. Finally, they should find a group that really educates and mentors its members in vital areas of the trade, rather than merely pitching products to make sales.
Leverage the Experts
Since real estate investments have a lot of moving pieces, it is critical for investors to leverage experts in different aspects of the project to minimize mistakes and ensure their success.
They should try to find a team of experts that have already made the due diligence on their behalf. Those who prefer to keep things simple commit less mistakes and help the investors become more profitable in the long run.
Simply put, there’s no point in reinventing when there’s already a proven process in place.
Treat Investments Like Business
Real estate investing is a business. Since it’s a business, it requires all of the following like every other business does:
- Proper Management
- Purposeful Planning
- Savvy Execution
It pays for investors to remember that successful businesses are run by high-quality people at every level of the organization. Regardless of the size or magnitude of the real estate investment, investors must run it like a business to ensure its success.
Investors, and anybody who’s willing to put in the work, can make money in real estate when equipped with the right knowledge and systems. The journey can be a wonderfully creative process given the opportunities that lie in waiting in 2020 and beyond.