Purchasing and owning real estate is an investment strategy that’s profitable and exciting due to its high return potential and ability to diversify your portfolio, protecting you from adverse economic conditions. You can invest in real estate in many ways, with each option having different capital requirements, risks, and investment dynamics.
If you’ve got your eyes on a nearby property for sale, here’s a rundown of four the best and easiest ways to successfully invest in real estate, promising lucrative returns.
Buy Rental Properties
The simplest way to become a real estate investor is by purchasing residential or commercial properties and renting them out to tenants. It’s a great investing strategy in real estate that lets you build wealth while generating passive income. The return potential for owning rental properties is big thanks to the combination of passive income from tenants, house equity appreciation, and leverage when purchasing the properties.
Although it’s a simple way of getting into real estate, this method requires significant capital to cover the costs of upfront maintenance expenses and vacant periods. Most lenders will demand at least a 25% down payment for an investment property loan if you plan on borrowing. Additionally, this strategy requires time, effort, and patience, so if you don’t have any of these, explore different options.
Join Real Estate Investment Groups
Joining a real estate investment group (REIG) is ideal for individuals looking to own real estate without running or maintaining it. REIG works like a small mutual fund investing in rental properties. In a standard REIG, a company purchases or creates a set of apartment complexes or condos, allowing investors to buy these properties through the business, thereby joining the REIG.
As an investor, you can own one or several units of the complex. Still, the company is responsible for managing the units, maintenance, filling up vacant rooms, and interviewing potential tenants. In exchange for these services, they take a percentage of the monthly rent.
Additionally, you’ll still receive income even if your particular unit is empty since an REIG allows all units in the complex pool a portion of the rents, guarding against occasional vacancies.
House hacking is the combination of purchasing a home to use as a primary residence and rental unit. It involves buying a residential property with 2 to 4 units, and the investor lives in one of them while renting the rest out. It’s a low-cost way of building a portfolio of rental properties. However, a downside of this is that you won’t have much privacy since you’ll live with the tenants.
Real Estate Crowdfunding
This investing strategy in real estate is relatively new, but it’s growing exponentially due to its lucrative returns. This works through a real estate developer identifying a great investment opportunity. Instead of funding the project with their finances, they raise the capital through investors in exchange for an equity interest.
This investment strategy’s return potential is enormous as most crowdfunded real estate projects have an internal rate of return (IRR) of over 15%. You can join as an investor by exploring websites such as CrowdStreet or Realty Mogul to get the best deals.
You don’t have to be a millionaire to become a real estate investor, and following any of the simple investment methods mentioned helps you be one step closer to profit and long-term success.