Six Ways to Invest in Real Estate
July 20, 2022
Invest confidently in real estate
Invest confidently in real estate
Do you want to know how to invest in real estate but aren't sure where to start? Maybe you have a friend who got their first real estate investment and want to learn how they got it. Let's get started looking at how to invest in real estate.
As a real estate investor, you can generate income and wealth by putting your money and time into real estate assets such as apartment buildings or pieces of land. This is very similar to how you might otherwise invest your money into conventional savings, stocks or mutual funds.
Real estate investing can be a good way to grow your wealth, diversify your portfolio, and spread your risk away from other investment categories. If you’re just getting started with real estate investing, it doesn’t require huge amounts of cash, as there are ways to obtain financing, find partnerships or to leverage other existing assets. With real estate investing, you can also have a direct hand in the operation of the property which gives you more control of your investment compared to owning shares of stock in a company. Depending on the type of real estate investing you choose, you can enjoy benefits like having real estate income generating short-term cash flow and long-term appreciation of the property’s value.
If you are considering residential real estate, Padvest will help you quickly evaluate residential properties to determine if their financial potential matches up to your investment goals. In this article, we’ll look at different types of real estate investing and highlight where Padvest shines in making you a more confident real estate investor.
If you want to get started in real estate investing and your primary residence is already your own home, there are a few ways to get started. While you live in your home, you can leverage the equity in the home to finance other investment activities, like getting a down payment for another rental property. Additionally, you can generate income from some part of your home as a short-term rental on sites like Airbnb or as long-term rentals. These are good ways to get started if you only have equity in a home you’re living in, but not a lot of extra cash on hand.
House flipping is the term used by real estate investors who make money by buying a property with the specific intention of making improvements and then immediately selling the property for a profit. Real estate investors flipping houses may look for foreclosures or distressed properties where minor updates can bring big returns upon selling or “flipping” the home. If you’re interested in flipping homes, you may consider looking for a home that needs some TLC and can be purchased under market value so you can try to maximize your return on investment. Many investors attend real estate auctions where they look at such deals.
When you’re flipping houses, you’ll look for specific data about which upgrades to consider and how they might add to the final value of the property when it’s sold. You’ll also want to consider the holding cost, which is the cost you’ll incur on the property and the impact of on any financing and taxes until the house can be sold.
Short-term rentals range from a couple of days to a couple of months and have gained in popularity in recent years. Services like Airbnb and VRBO have made it easy to advertise this type of rental and made it cheaper and simpler for travelers to find quality hotel alternatives all over the world. This is a popular strategy for real estate investors who are interested in both the premium rental rates they can get with this type of offering and the long-term appreciation of holding the property. You may experience higher maintenance and property management costs with short-term rentals given the frequency of resident turn over and the need for more active customer service. If you want to earn income from your primary residence, you can short-term rent a guest room or mother-in-law apartment in the house where you live.
A long-term rental is when you buy a property, rent it with lease terms of at least 1 year, and hold that property for multiple years. This has been the bread-and-butter strategy for real estate investors for decades. This is also called “Buy and Hold Investing.” It’s a common strategy used to return long-term appreciation of a property and collect reliable cash flow from the rental income of longer leases. The short-term costs associated with long-term rentals can be less because there is often less turnover and the need for active management can be reduced. But costs of owning property can sometimes increase over time as buildings need major updates like roofing, windows or other systems that may deteriorate with age.
Another popular variation on house flipping is known as BRRRR (buy, rehab, rent, refinance, repeat). This strategy has been made very popular by BiggerPockets. It’s a way to combine flipping & long-term rentals. With this method, instead of immediately selling a flip property after rehabbing it, you rent it for cash flow. Then you refinance it to cash out the equity from the upgrades with the hope or recovering all or most of your initial investment. With this strategy, you could acquire rental properties without tying up too much of your cash.
Real estate investors also acquire land as a strategy. Depending on the type of land, you might be able to generate ongoing cashflow from activities such farming or space rental. Additionally, investors might look for long term appreciation in land prices or potential for re-zoning and development of the land.
You'll want to start thinking about real estate investing like a small business. Think about your goals and your strategy, and what types of real estate investments you may want to make. How much capital do you have? Do you want to co-invest with partners?
You may want to seek out rental property owners near you to talk to them about how they got started with a real estate business. They can also help you understand your local rental market, and what their experience has been as a property owner. You can ask them if they act as their own property manager, or if they use a property manager service. This will help you think about the costs of running the building (like repairs and maintenance, property taxes, etc.) vs. potential rental income.
You can learn about the key metrics to analyze for each property too. Then, you can discover great neighborhoods for investing and do detailed financial evaluations of the properties you find to see if they match up with your investing strategy.
When you're ready to start investing, Padvest is here to help you make good decisions with confidence.
