You love investing, and at the moment almost all your money is in the stock market. You know it’s important to diversify, but aren’t sure if real estate investing is right for you. You may think that this requires a lot of money, or that it requires a lot of work.
And while some of that is true, there are new options this year that could make real estate a potential investment for you.
While real estate investing is certainly not for everyone, it can be very lucrative. Many people have invested millions in real estate. If you are looking to expand your investment horizon, here are 5 different ways to invest in real estate.
1. Invest in a Big Real Estate Deal
One of our favorite options for investing in real estate is to team up with others to invest in great deals. It can be either commercial or residential.
There are two good things about investing in a great real estate deal online:
Low Minimum – Depending on the platform you use, you can invest as little as $500 and become a property owner. You don’t need to be an accredited investor – in the past, you have to be an accredited investor to participate in these types of investments, but that rule has been eliminated for some investment types.
As such, if you want to diversify your investments, but you don’t have a lot of money to do it, this can be a tempting way to start.
We recommend three platforms for investing in real estate:
Fundrise – Fundrise is a real estate investment trust (REIT) that allows you to invest in a basket of real assets. As such, you get a little diversification on your real estate investments. Plus, you can get started with just $500. Check out the fundrise here. Realtymogul – Realtymogul offers investors a wide variety of properties to choose from, including residential, mixed use, commercial and retail. They do not charge their investors fees, instead putting the burden on the asset holders. Investors can start seeing returns just a few weeks after the project is funded. We partner with Realtymogul and think it is one of the best platforms out there right now. Streetwise – A new private equity REIT focused on cash-flowing real estate investments. One of the better fee structures available. Open to both accredited and non-accredited investors. View Streetwise here >>
If you’re curious about more options, we’ve compared all the major real estate investment sites here.
2. Buy a Rental Property
Buying and renting homes is a great way to generate additional monthly cash flow.
To do this, you must purchase a home that has the combined monthly mortgage payment, home insurance payment, and property tax payment less than the property’s rent. There are many ways to do this – from shopping in an area with high rents, to making a lot of money so that your mortgage payment is lower.
One of our favorite ways to do it online is with Roofstock. You can easily buy single family rental properties (which already have tenants and cash flow) online.
There are two downsides directly to the rental property. First, it usually requires a lot of cash – from downpayments to required maintenance. You really need to assess whether your return on investment will be worth it.
The other major aspect of real estate is dealing with tenants. You have to screen the renters before letting them in. You’re bound to hear robbed stories at one point or another, too, so you’ll need to learn to be firm with the renters. If you’re the type of people to give away easily, you may be better off letting a property management service oversee your rental properties. Either way, ongoing work is required.
Depending on who you talk to, rental properties can be very attractive. And, if you do the advance work of finding those hidden gems, you can let a property management service do the rest and rental properties can be a form of semi passive income.
3. Flipping House
Flipping homes can be a bit risky, but it can also be extremely rewarding. And, since property values are on the rise again, this is a good time to start changing homes. Flipping a house is the sum total of buying homes under market value, fixing them up, and then selling them for a profit.
To be a successful flipper, you have to find those bargain homes – the less work you have to do, the better. The ideal flip home would be one that requires only minor cosmetic repairs. You can then make the house more aesthetically pleasing and sell for a profit.
When you decide to move home, you need to prepare yourself for the possibility that the home won’t sell fast—or for a very high profit. You take a big chance when you move a house, which is why you have to pay special attention to the location, needs and price of the homes. However, if you have a habit of flipping houses, you can consider this as one of your best investments ever.
Check out this amazing guide to flipping homes for less money.
4. Rent out a part of your existing home
If you’re not sold on the idea of buying a home just to recover your money little by little, you can test the waters by first renting out a portion of your home (also known as house hacking). ). You have a few options for doing this.
First you can rent an extra room in your house or you can rent a basement. If you haven’t bought your first home yet and like the idea then you can also buy a duplex and live in one apartment and rent the next one.
The advantage of renting out a portion of your home is that you can see your tenant up close. When you are in the same house, it is less likely that a tenant will try to coerce you to pay rent. Renting out a portion of your home also gives you the ability to feel what it is like to be a landlord without making such a huge monetary investment.
Our friend Michelle recently wrote about renting a room to a stranger, which is a good thing if you’re considering this option.
5. Real Estate Investment Trusts (REITs)
If you think real estate is a great investment, but you don’t want to get too hands-on, you can invest your real estate in the stock market.
Real estate investment trusts (REITs) are great ways for you to invest in real estate without being actively involved. A REIT is a fund established to invest in mortgage instruments, bonds and stocks in the real estate sector.
There are a few different types of REITS; Equities, mortgages, and hybrids. An equity REIT invests in properties, a mortgage REIT invests in mortgages, and a hybrid is a mixture of both. All three typically offer higher yields — basically you get paid back from the interest that other people are paying on their mortgages.
If you are short of time, the best way is to invest in REITs.
Some of the more popular REITs include American Capital Agency (NASDAQ: AGNC), Annaly (NYSE: NLY), Realty Income (NYSE: O).
You can invest in REITs of your preferred broker. We recommend both Fidelity and TD Ameritrade.
What do you think?
These days you can invest in almost anything and you should do what feels right to you. Personally, I love real estate, but I know not everyone does.
If you are thinking about trying your hand at real estate investing, it is good to know that there is more than one way to go about it. Still, it’s important to do your due diligence before starting any new investment.
Which method of investing in real estate have you tried?