You love investing, and at this point nearly all of 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 might think it requires a lot of money up front, or requires a lot of work ongoing.
And while some of that is true, there are new options in 2016 that can make real estate a potential investment for you.
While real estate investing certainly isn’t for everyone, it can be very lucrative. Many people have made millions investing in real estate. If you’re wanting to expand your investment horizons, here are 5 different ways to invest in real estate.
Buy A Rental Property
Purchasing homes and renting them out is a great way to produce extra monthly cash flow.
To do this, you have to purchase a house that has a combined monthly mortgage payment, home insurance payment, and property tax payment lower than the rent the property commands. There are several ways to do this – from buying in an area with high rents, to putting a lot of money down so that your mortgage payment is low.
There are two downsides to owing a rental property directly. First, it typically requires a lot of cash up front – from the downpayment to the maintenance required. You really need to assess whether your return on investment will be worth it.
The second major downside of real estate is dealing with tenants. You’ll need to screen renters before letting them move in. You’re also bound to hear sob stories at one point or another so you’ll have to learn to be firm with renters. If you’re the type to easily give in to people, you may be better off letting a property management service oversee your rental properties. Either way, there is ongoing work required.
Depending on who you talk to, rental properties can be very lucrative. And, if you do the upfront 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.
Join Others With Crowd Funded Real Estate
One of the newest options for investing in real estate is crowd funded real estate. This is where you join others to invest in a rental property – either commercial or residential.
There are two great things about crowd funded real estate:
- Low minimums – depending on the platform you use, you can invest as little as $1,000 and be an owner in a property.
- You don't have to be an accredited investor – in the past, to participate in these types of investments, you had to be an accredited investor, but that rule has gone away for certain investment types
As such, if you're looking to diversify your investments, but don't have a lot of money to do it with, this could be a lucrative way to start.
We recommend two platforms for investing in crowd funded real estate:
- Realtyshares – Realtyshares offers investors a variety of properties to choose from, including residential, mixed-use, commercial and retail. They don’t charge their investors fees, instead placing that burden on the property holders. Investors can start seeing a return just a few weeks after the project is funded. We are partners with Realtyshares, and they’re giving College Investor readers $25 for free for signing up with the code TCI25.
- Fundrise – One of the most popular real estate crowdfunding sites, Fundrise has a minimum investment of $1,000 and charges between 0-3% in fees. The site is ruthless about which projects it accepts – only about 5% of proposals are chosen. Fundrise is another one of our favorite sites simply because of the range of investment properties they have to choose from, but also because you don’t have to be an accredited investor to invest – they are one of the only platforms that allows this currently.
If you're curious about more options, we compared all of the major real estate crowd funding sites here.
Flipping homes can be a bit risky, but also extremely rewarding. And, since property values are back on the rise, this is a good time to get started flipping homes. Flipping a house is the sum of purchasing homes under market value, fixing them up, and then selling for a profit.
To be a successful flipper, you need to hunt down those bargain homes – the less work you have to do the better. The ideal flip home would be one that only needs minor cosmetic repairs. You could then make the home look more aesthetically appealing and sell for profit.
When you decide to flip homes, you have to prepare yourself for the possibility that the home may not sell fast – or for much of a profit. You take a big chance when flipping homes, which is why you have to pay special attention to the homes location, needs, and price. However, if you have the knack for flipping houses, you could find this to be one of the best investments you’ve ever made.
Check out this amazing guide to flipping houses with little money down.
Rent A Portion Of Your Existing Home
If you aren’t sold on the thought of purchasing a home only to recoup your money little by little, you could first test the waters by renting a portion of your house. You have a couple of options to do this.
First you could rent a spare room in your home or you could rent the basement. If you’re yet to purchase your first home and like this idea you could even buy a duplex and live in one apartment and rent the next.
The advantages to renting a portion of your house is that you get to watch your tenant closely. It’s less likely that a tenant will try to stiff you for the rent payment when you’re in the same household. Renting a portion of your house also gives you the ability to get a feel for what it’s 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 great read if you're considering this option.
Real Estate Investment Trusts (REIT)
If you think real estate is a great investment but don’t want to get quite so hands on, you could take your real estate investing to the stock market.
Real Estate Investment Trusts (REIT) are great ways for you to invest in real estate without being actively involved. An REIT is a fund that is setup to invest in mortgage instruments, bonds, and stocks in the real estate niche.
There are a few different types of REITS; equity, mortgages, and hybrid. An equity REIT invests in properties, a mortgage REIT invests in mortgages, and a hybrid is the mixture of the two. All three typically offer high yields – basically you get paid back from the interest others are paying on their mortgages.
If you’re strapped for time, investing in REITs is probably the way to go.
Some of the more popular REITs include American Capital Agency (NASDAQ: AGNC), Annaly (NYSE: NLY), Realty Income (NYSE: O).
What Do You Think?
These days you can invest in just about anything and you should do what feels right for you. Personally, I love real estate, but I know not everyone else does.
If you have been thinking about trying your hand at real estate investing, it’s good to know that there’s more than one way to go about it. Nevertheless, it’s important to do your due diligence before beginning with any new investment.
Which of the ways to invest in real estate have you tried?