The term “real estate” is not always used for purchased properties we occupy for our own needs (for instance, to turn it into our home or for converting it into a commercial space representing our business). The term is also often (probably more frequently) used for properties we want to use as investment vehicles. You can invest in real estate by renting out your property, joining hands with a real estate investment group, practicing real estate trading, and so on. Read on to get acquainted with some of the simplest real estate investment options you can try out.
1. Rental properties
To earn money through rentals, you will need to purchase a property and then rent that property out to a tenant. The property’s owner would be the landlord and will be responsible for paying the taxes and mortgage as well as bearing all expenses for maintaining and repairing the property.
There would be little chance of you making a loss, as you will most likely be able to charge your tenants enough for covering all the above mentioned costs. In addition, as a landlord, you will also have the right to change extra amounts for earning a profit every month. However, some landlords prefer adopting a different approach. For instance, Jason Greenwich, who lives in Texas, decided to charge his tenant enough just for covering the expenses until he succeeded in paying the mortgage. Once that was done, almost the entire rent he received every month became profit.
What’s more, the value of Jason’s rented property appreciated during the course of his mortgage. So, once the mortgage was paid in full, Jason became the owner of a more valuable property. This shows that investing in rental property will treat you with highly profitable long term results.
2. Real estate investment group
These groups are actually miniature mutual funds for houses meant for being put up for rent. George White of Philadelphia decided to join hands with one such group. He decided so as although he wanted to own rental properties, he didn’t want to deal with the burden of playing the role of a landlord.
George purchased a few condos via the group, which was later rented out. He also managed to persuade a few of his close friends to purchase a few surrounding apartment blocks and use them as rental properties. All those units are currently being managed by the group. The group is just taking a certain fraction of the monthly rent and in turn bearing the entire responsibility of looking after the units. In addition, the group also does the job of advertising vacant blocks, if any, and conducts interviews for picking tenants. Usually, the group is also responsible for deciding how cheap or expensive the rental properties would be.
3. Real estate trading
To be a real estate trader, you will have to purchase properties with the aim of keeping them in hold for a period of three or four months (the duration might vary in some cases). This waiting period is used for allowing the price of the properties to increase. This procedure is often referred to as “flipping”. The technique is mostly used on properties that are excessively high on demand or are extremely undervalued. As a flipper, you should always try to avoid investing money for making improvements to the house you are looking to sell. In addition, also stay alert about wholesale deals; such deals would help you get properties in much lower rates than the market price.
If you're interested about Real Estate trading "Flipping Houses" you can read more How to Get started Flipping Houses
4. REIT (real estate investment trust)
A REIT or real estate investment trust is formed when a trust or company buys and operates income properties using investors’ money. Like conventional stocks, REITs are also purchased and sold at all major exchanges. To be categorized as a REIT, the trust/corporation involved in the process needs to pay as much as 90 percent of the taxable profit earned by it as dividends. Doing this is extremely important for the REITs for ensuring that they don’t need to pay corporate income tax.
5. Long distance properties
Prices of properties in big cities such as San Francisco, New York, etc. are usually extremely high. Most of us don’t have the ability to buying properties that cost $500,000 or even more. If you are in such a situation, you must look for properties in other parts of the country. The property might be located hundreds of miles away from your current location. There are many real estate agents who will be able to guide you on valuation of long distance properties.
- The most common way of investing in real estate is by renting out a property owned by you.
- If you don’t want to play the role of a landlord, rent out the property through a real estate investment group.
- You can also try flipping by becoming a real estate trader.
- The fourth option is investing in real estate as a REIT.
- If properties in your city are too costly, invest in long distance properties.