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Six Ways to Invest in Real Estate

As a real estate investor, you can generate income and wealth by putting your money and time into a real estate asset such as a property or a piece of land. This is very similar to how you might otherwise put 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 generating short-term cash flow and long-term appreciation of the property’s value.

Padvest will help you quickly evaluate a residential property to determine if its 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.

Get started with your own home

If you want to get started in real estate investing and you already own 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 fund 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.

Flipping

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

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 cash flow from your primary residence, you can short-term rent a guest room or mother-in-law apartment in the house where you live.

Long-term Rentals

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.

BRRRR

Another popular variation on 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.

Land

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.

Which method is best for you?

If you’re considering investing in residential properties, it will require financial evaluation of various properties to see how they will meet your investing goals.  Padvest is here to help simplify that analysis so you can compare investments and make investment decisions with confidence.

Give it a try today!

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