If you’re looking for a great investment to supplement your income, real estate investing may seem appealing. It’s grown in popularity lately, largely thanks to the media coverage. We’ve seen people turn a $100,000 dump into a $250,000 dream home, so it’s understandable why you’d want a piece of the action.
The market is ripe for investment as well. The median sale price of a single-family home has risen 23 percent since peak values in 2007 before the financial crisis, and it’s on an upward sweep. Interest rates are also incredibly low right now.
However, investing in this market is never as easy as it looks on television, and with fluctuations in the real estate sector, it’s important to take the right approach. Here are some ideas for the beginning investor.
- Start with Rental Properties
There are many reasons that rental properties make great investments. Whether you’re purchasing a single-family home or investing in a group of units, a rental property is one of the most stable real estate options. Not only is it a higher leverage investment, but you can also take advantage of multiple profit streams. With the high volume of renters right now, this is an excellent area to get started.
- Buy Into REITs
One sector of investment is known as real estate investment trusts, or REITs. When you put your money into these funds, regular investors can access public investments. It’s hugely appealing for big dividends with little effort on your part.
Basically, you’ll put your money into a fund to promote a certain real estate investment, and the organizers will handle the heavy lifting. This means you can enjoy the benefits of real estate investing without grumpy tenants, timing the market, or getting your real estate license.
- Purchase Wholesale Properties
By buying properties wholesale, you can often save quite a bit on the initial purchase price. A wholesale property is usually sold with a middleman involved called a wholesaler. You don’t need out-of-pocket cash for the deal, and once the property is in hand, you can either flip it or let it appreciate for profit.
Wholesaling is a popular investment method, but be wary of certain state regulations that must be followed. Your profits will be significantly delayed if you don’t watch these rules carefully.
- Real Estate Crowdfunding
Although this style of crowdfunding is not as common, it’s a great way for inexperienced real estate investors to hit the market running. It operates very similarly to a publicly traded REIT in that groups of investors pool their investments to purchase a property or set of properties. They all split the profits according to their contribution.
The difference is that privately traded properties usually have much higher yields than those handled publicly. There are fewer investors and upfront fees that get in the way. There are also lower barriers of entry, but this comes with higher risks. Take that into account and do your homework before pouring your cash into such a deal.
- Live-In Flipping
When you watch house-flipping shows on television, you usually see a real estate broker and designer team up to renovate houses for clients. This is a great option for the experienced investor who understands the market and has the cash to make the project a success.
For beginning investors, live-in flips are much better. You’ll find a home in a great location at a great price because it needs updates. Then, you’ll live in the home while you put a combination of sweat equity and contract work into making the improvements. The risks are significantly lower for this style of flip, and your financial burdens go down if you live in the house while making the improvements.
Real estate investing can be an exciting and incredibly lucrative industry for those seeking greater financial peace and a broader investment portfolio. Consider your options carefully, and choose the greatest promise for rewards and the best-suited prospect.