Everyone desires to get on the property ladder. Buying and owning real estate is a satisfying and lucrative investment strategy. Unlike buying bonds or stock, you can always use leverage to purchase a property by making a down payment followed by smaller payments over time. One question will run through your mind if you’re a prospective buyer; what’s the best way to invest in property? Well, here are five simple ways to invest in real estate:
1. Buy Rental Property
An easy way to make a regular income is by purchasing an investment property. This doesn’t imply speculative property bought to be sold later on at a higher price. Instead, investment property refers to the commercial or residential property you buy to rent out to tenants.
With a rental property (or several), it will be easier for you to build wealth and generate income while at it. The beauty of investing in rental property is the strong return potential due to the combination of regular income, equity appreciation, and the relatively straightforward use of leverage when purchasing the property.
On the flip side, you should be careful when investing in rental property, if you need some fast money for some repairs or improvements, you can get a title loan in Anaheim, to get you the money that you need. The investment isn’t suitable for everyone, so consider these potential drawbacks before you throw your hat in the ring:
- Cost Barriers: Buying your first rental property can be pretty expensive. Lenders may want you to put up to 25% down for the property loan. Few prospective buyers can afford to make the down payment.
- Uncertainty: Investing in the wrong rental property market can backfire on you. Before buying a rental property, gauge its overall potential to ascertain if it meets your investment goals.
- Time Commitment: After purchasing a rental property, you’ll still need to invest a lot of your time managing it, even if you hire a property manager.
2. Flipping Houses
Buying run-down properties to fix them and flip them at a higher price is lucrative, though a little risky. Generally, property values are always on the rise, so there are many opportunities to make healthy profits by flipping houses. You should know how to hunt down bargain homes, fix them, and sell them for you to be successful in this venture.
Remember that the ideal flip property is one that only requires minor repairs. You may choose to flip a home without fixing it up. However, cosmetic repairs go a long way in making the property more appealing besides increasing its value.
When you choose this real estate venture, you must prepare yourself for the probability of owning property that stays too long on the market. Similarly, a property may not bring in much of a profit. Nonetheless, as you get more experienced at flipping homes, it will be easier for you to hunt bargains and flip them at higher prices.
3. Purchase a Vacation Rental
Vacation rentals are different from long-term rental properties. As the name suggests, you buy vacation rentals to rent out to holidaymakers. Since the property won’t be occupied all year round, you can use it as your second home. Typically, vacation rentals bring in more money per rented day than a long-term rental property.
You can increase the rental cost during the peak holiday season. It will make up for the lower off-peak rents. Moreover, vacation rentals tend to deteriorate much slower than long-term rentals, besides having lower utility bills. On the flip side, managing a vacation rental is more expensive and time-consuming.
Expect to pay property managers about 25% of the rent you make out of your property. That’s considerably more than the 10% industry standard for long-term rental properties. However, this shouldn’t dissuade you from investing in vacation rentals because they have lucrative returns.
4. Join a Real Estate Investment Group
A real estate investment group(REIG) is excellent for prospective buyers who want to invest in the real estate market without the hassle of managing property. REIGs are akin to small mutual funds, which make rental property investments. Typically, a company will build or buy apartment blocks or condos and allow investors to purchase units through a company. In doing so, the buyers join the investment group.
As a single investor, you can own apartment units in the building, but the investment company will manage the units. For instance, if you rent out your units, the management group will handle maintenance, advertise vacancies, and interview potential tenants. The company will take a percentage of the rent your tenants pay in exchange.
If you join an REIG, the lease will be in your name. Similarly, all the condos/apartments on a building pool a percentage of the rent to protect investors against occasional vacancies. For this reason, you’re guaranteed a regular income even when your unit is empty. There will be enough money to cover costs if the vacancy rates aren’t too low.
5. Real Estate Crowdfunding
This real estate investment strategy allows property developers to raise money from large groups of investors. Real estate crowdfundingis usually done via online platforms bringing together property developers and prospective investors. You’ll receive equity or debt in a real estate development project in exchange for your money.
Once the project is complete, you’ll receive regular payouts corresponding to your investment. Few property crowdfunding platforms are publicly available. Many serve accredited investors, primarily experienced investors or high-net-worth individuals. If you find a real estate crowdfunding opportunity that suits you, it could be an excellent way to earn an income.
Final Thoughts
There are many ways to invest in the real estate market and earn an income. You should remember that you’re not mandated to pick just one of the real estate investment strategies. The most efficient way to invest in the property market is by choosing a combination of investment strategies.
The beauty of real estate investment is that you can use the property title as security to apply for a loan to expand your portfolio.