Investing in real estate is the newest trend and it has become one of the most common investment vehicles. Real Estate investment is more than just buying a property or home for yourself. It can actually add real value to your income if you know when, where and how to invest.
Today we will introduce you to real estate investment and provide you with the best options to invest in the real estate market.
It could be a Great Start…
Real estate is equal to buying, owning and selling stocks and shares, but a little more complicated. However, the real estate market has plenty of opportunities that go beyond buying home. Since more growth is likely on its way, both in coastal cities and islands, 2018 and the coming years pose a very good time to invest in real estates and the housing market in several other ways. People who are looking for major investment opportunities, real estate could be a great start, even for amateurs and beginners.
An Introduction to Real Estate Investment
We will take you through the different places where you can invest:
Go for Rental Properties
This is a basic investment where a person buys a property and rent it out to a tenant. If you are buying the property, you will be liable to pay the mortgages, taxes, maintenance costs and so on.
You can charge enough rent from your tenant to cover the above expenses. You must charge 10 – 20 percent more to earn a profit because that was your main purpose of investing in a property. However, don’t go beyond the current rental price, charge enough to cover your loan until the mortgage has been paid and after that, everything you earn will become a profit.
Real estate value has been consistently increasing in the past several years and it will in the future. So, by the time you clear your loan amount, your property value will have appreciated.
However, to avoid negative monthly cash flow make sure you have a tenant residing all the time. Also, ensure that your tenant keeps your property clean and beautiful without causing any damage to it.
Unlike buying and owning a stock, buying properties involve responsibilities. You can hire a professional property manager to take care of the problems and take the burden off your hands.
Become Part of Real Estate Investment Groups
You can either start your own Real Estate Investment Group or become a part of one. They are kind of mutual funds for rental properties. For instance, you buy a property and put it on rent. However, if you don’t feel like taking up a load of being a landlord then you can connect with a real estate investment group for investing in rental properties.
Real Estate Investment Groups are companies that buy or build a set of apartment blocks, individual villas or condos, and then seek investors to buy those flats through them. An investor can buy single or multiple properties from the group, however, the management of those properties will be on the company operating the investment group.
They will manage all the properties, take care of the maintenance, rent out your property on behalf of you and also advertise vacant units. As a service commission, the company will charge a certain percentage from the rent amount.
There are several types and versions of Real Estate Investment Groups. And there are benefits too, such as you will still receive enough to pay for your mortgage even if your flat is empty. The service quality and features totally depend upon the investment group.
Real Estate Investment Groups is considered a safe way to begin your investment in real estate properties. However, do your research and groundwork as groups are like the mutual fund industry, and they are susceptible to the same fees.
Enter Real Estate Trading – A Completely Different System
Like we said earlier, real estate investment is so much like buying and selling shares and stocks. Hence, real estate trading is like Day Trading which is definitely not similar to traditional ‘buy and hold’investment, and real estate traders will be entirely different from ‘buy and rent’ landlords.
Real Estate Trading is also known as Flipping properties, where traders buy properties with the intention of holding them for short period, say a couple of months, and sell them for a profit. The properties listed in the trading segment are either significantly low in value or are hot-selling ones.
Flipping is a short-term cash investment and if you go into it, you will most probably not be spending any money on improvements and alterations. The property will be sold as it was brought at a higher price.
Like in Day Trading, you can get caught in situations where properties don’t get sold immediately. This is where you may land into trouble as you may not have ready cash for the mortgage and will end up earning the continuous loss.
You can also be a second-hand flipper. In here you buy a reasonably priced property and increase its value by renovating and improvising the property. This could be a longer-term investment depending upon your renovation goal.
This is one interesting tool that is not available with stock market investors. For instance, if you buy a stock, you have to pay the full value of the stock before you place a buy order. Even if you buy on margin, the borrowed loan amount is much lesser than what you will get when you go for a real estate investment.
There are many types of mortgages, but the most conventional ones require only 25% down payment, and depending on your city, sometimes the amount can be as low as 5%. This means the moment you pay your down payment, you get a hold of your property and its equity.
You get the control of your property the minute the papers are signed even though the mortgage pays the full value quite later.
You Can Also Opt for Second Mortgages
A second mortgage is a loan that uses your property as collateral. So, you can use your first property as mortgage and make down payments on two or three smaller properties. You can either sell those properties for a profit or rent them out to tenants to pay the mortgage. At the end of the day, you get control of several properties by paying only a small part of the total value.
Best Options in Real Estate Investment
Apart from the above ways to invest in Real Estate, we have listed a few other options that you can consider in your planning:
1. Real Estate ETFs
An Exchange-traded fund is similar to index funds and mutual funds with same board diversifications and lower cost. If you want to invest in Real Estate and also diversify your investment money, ETF is a great option to start with.
Just like ETFs, you can also invest in Real Estate Mutual Funds. REMFs are made up of securities including stocks of real companies and a large amount of these funds go to building different types of properties.
2. Real Estate Investment Trusts
REITs are a solid investment for stock market investors that are looking for a regular income. The properties in here are bought and sold for major exchanges, where individuals invest in large-scale properties that gross high income.
These properties may include office buildings, commercial spaces, shopping malls, apartments, warehouses. There are reasons why you should invest in REITs and there are reasons why should you not. Research and interest is the primary key here.
3. Real Estate Focused Company
There are companies that are not REITs that own and manage real estates. However, they may have a lower dividend than REITs. These companies can be hotels, resort operators, commercial estate developers, timeshare companies and so on.
This is a good option if you want exposure to the specific type of real estate investment. You should also invest enough time in researching data, company history and other details.
4. Invest in Home Construction
Construction of new homes will continue to grow over the next few decades; therefore, investing in the construction side of the real estate industry could be a smart choice. Home builders invest in developing new neighborhoods and renovating old ones. So, you may consider investing your money and get sizable profits out of it.
5. Real Estate Notes
If you don’t want to deal with brick and mortar building, yet are keen to invest in real estate then Real Estate Notes are just for you. In this case, you buy debt at costs much below what a retail investor would pay.
You will typically be investing via a bank or a real estate investor.
6. Invest in Online Real Estate
There are several websites that let you invest in commercial and residential properties and receive cash flow distribution in return. This is similar to investing in REITs where your money is pooled with cash investment made by other investors and is used to purchase residential properties, commercial estates, buildings, schools and more.
You will receive benefits in the form of dividends, distribution, and long-term appreciations.
Although we have covered different types of Real Estate Investment options, we have just scratched the surface. There are countless of variations and sub-options that you would come to know only after you get into the field. However, if this article directed you to the right platform, do let us know in comments below.