Here are five key ways investors can make money on real estate.
1. HOUSE FLIPPING
House flipping is a common direct real estate investment strategy used to gain short-term profits. This is the process of buying an undervalued property, renovating it to add value, and then quickly reselling it for profit. This type of investing, however, requires you to have capital, experience, and knowledge of the real estate market to execute effectively. It can be a full-time job because it requires you to be on-site to oversee work done daily.
However, a flipper can lose money if the property doesn’t sell on time because they typically don’t keep enough uncommitted cash on hand to pay the mortgage on a long-term basis.
2. RENTAL PROPERTIES
Investing in a rental property is a great opportunity for individuals to create a cash flow to build wealth. This type of direct investing will require you to manage tenants and oversee the maintenance of the property. You can gain profit in this strategy by collecting rent and through property appreciation. However, it can be difficult to manage tenants, and they can also damage your property. So you must have capital set aside in case of any damage.
3. REAL ESTATE INVESTMENT TRUSTS (REITs)
A real estate investment trust (REIT) is an indirect investing strategy created for an investor who wants exposure to real estate without the need to invest directly. A REIT is like any other stock that you purchase and sell on a major exchange.
A real estate investment trust is created when a corporation(or trust) uses investor capital to buy and operate commercial properties such as houses, office buildings, shopping malls, apartments, hotels, self-storage facilities, warehouses, and resorts, to mortgage REITs, which deal in investment and ownership of property mortgages. However, there can be a mix of Equity and Mortgage REITs, better known as Hybrid REITs. This type of trust mixes investing and owning both properties and mortgages.
For a corporation to maintain its REIT status, 90% of its taxable profit in the form of dividends must be paid to its investors annually. This allows the corporation to avoid paying income tax, whereas a regular company would be taxed on its profits. So unlike regular dividend-paying stocks, REITs are a solid investment for stock market investors who desire firm potential income.
This type of investment is professionally managed, and it provides investors ownership in a diversified portfolio of real estate properties. Also, it’s a liquid market, meaning you can easily buy and sell REITs on an exchange. You don’t need a realtor or a title to complete the transaction. REITs are a more formalized version of Real Estate Investment Groups (REIGs).
Finally, when looking for REITs, you can go to Nareits, which is the worldwide representative voice for REITs and listed real estate companies with an interest in U.S. real estate and capital markets.
4. REAL ESTATE INVESTMENT GROUPS (REIGs)
A real estate investment group is a company that builds a set of apartment blocks, or condos, then allows investors to purchase them through the company, thereby joining the group. The investment group, therefore, manages all the units, handling maintenance, advertises vacancies, and interviews tenants. In compensation, the group collects a monthly percentage of the total rent collected. This type of investment is ideal for investors who want to invest in rental properties but don’t want the trouble of maintaining and managing the property.
5. ONLINE REAL ESTATE PLATFORMS
Real estate investing platforms is a relatively new way to invest in commercial and residential properties. The investment is done on real estate platforms, also known as real estate crowdfunding sites. The platform pair developers and other real estate professionals with individual investors and companies that want exposure to the real estate market without the headache of owning financing and managing properties.
Real estate crowdfunding raises capital for real estate investments. When developers or real estate professionals find investment opportunities, they may not want to fund the entire investment themselves. Hence, they turn to crowdfund to let individual investors help finance the project. The process enables investors to invest in real estate privately without having to own, finance, or manage properties. This type of investment is risky but potentially provides higher returns than publicly-traded REITs.
Crowdfunding sites are a great way for investors to diversify their real estate portfolios with low account minimums and low fee structures. It’s important to note that most real estate crowdfunding platforms are open only to accredited investors. This means they are only open to investors (individuals and companies) who have high-net-worth and experience to trade privacy and riskier investments.
Here are 3 top real estate crowdfunding sites that you can visit that offer investment options for both accredited and non-accredited investors.