March 23, 2020

best ways to invest in real estate

Some of the best ways to invest in real estate have nothing to do with being a landlord. “What a relief!” you might be thinking. The fact is, not all of us are landlord material. But that doesn’t need to stop you from cashing in on real estate as an important part of your financial plan.

The reality is that the best ways to invest in real estate vary from person to person depending on your:

  • Specific interests in real estate
  • Risk tolerance
  • Skills (business, math, construction)
  • Financial situation

Ready to buy your own digs with a built-in mortgage helper? Great idea! Want to invest in real estate online? No problem. Eager to try your hand on a fix and flip? Why not? Only have a couple hundred bucks and want to invest in real estate? You bet.

How Do I Start Investing in Real Estate?

Check out the different types of real estate investments below to see what your options are to do all this and more.

1. Real Estate Investment Groups/Clubs

Because real estate investing can be intimidating with lots to learn, real estate investment groups are a great place for beginners to start.

The National Real Estate Investors Association offers members many benefits with their free membership including:

  • education
  • networking
  • events
  • special discounts with participating businesses
  • tools and resources (rental contracts for example)

Another site for investing in real estate online is BiggerPockets. BiggerPockets offers an extensive collection of free resources for beginners wanting to learn more about real estate investing.

If you decide you’re ready to jump in and actually start real estate investing, BiggerPockets offers different memberships starting with a basic Plus Membership at $19/month right up to the Premium Membership for $99/month. Paid membership comes with various perks (depending on the level of membership purchased).

Member benefits include:

  • Landlord forms
  • 8 different real estate investment calculators
  • Weekly webinars (with access to replays)
  • A site to list properties for sale
  • A Pro Forum where members can ask questions

2. Real Estate Investment Trusts (REITs)

Investopedia defines a real estate investment trust (REIT) as “a company owning and typically operating real estate which generates income”.

The properties held by a REIT can vary widely and include shopping centers, health care centers, apartments, warehouses, hotels, and utility pipelines to name a few.

The benefits of owning real estate through a REIT include:

  • not having to manage or maintain a property
  • the relatively small cash investment required to start
  • dividend income earned

REITs can be held in both tax-advantaged accounts such as IRAs and 401Ks as well as individual taxable accounts.

3. Real Estate Crowdfunding

If you want to invest in real estate online or you want to know how to invest in real estate with little money, real estate crowdfunding can be one of the best ways to accomplish both of these.

Real estate crowdfunding refers to investors pooling money together to purchase properties including residential, commercial, and multi-unit properties such as apartments or four-plexes. This is done through online real estate investing companies such as Groundfloor, Fundrise, PeerStreet, and RealCrowd.

With some platforms such as Groundfloor, investor funds are pooled and loaned to real estate developers who fix and sell property for a profit. The developers then repay investors their principal with interest after selling the property.

Investors’ loans are secured by the property itself and investors hold a first lien position on the property making this investment more secure than some other investments.

One of the biggest benefits of real estate crowdfunding is that investors don’t need a lot of money to own a piece of real estate. And return on investment (ROI) for these investments is often better than stock market or index fund returns.

For example, real estate investors can invest as little as $10 through Groundfloor in bricks and mortar properties. And with advertised returns between 7% – 14%, this makes for a very attractive investment.

4. Fixing and Flipping

Another good way to invest in real estate is through fixing and flipping houses (just like you’ve seen on TV!). This can be a great way to invest in real estate, particularly if you’re handy and have some construction and home building skills.

The concept is simple:

  • Find a property listed below market value
  • Estimate the cost of repairs and renovations needed
  • Complete the repairs and renovations
  • Sell the property at a price to make a profit

Although the idea is simple, successfully doing a fix and flip can be difficult due to unforeseen problems including:

  • Structural problems
  • Pest infestations (termites for example)
  • Needing to make expensive improvements to meet current building codes
  • Homeowners’ association (HOA) restrictions
  • Repairs that take longer than expected

These are just a few of the problems that can lead to financial loss on a fix and flip, even if you’ve done your due diligence upfront.

5. House Hacking

House hacking refers to purchasing a property (usually a multi-unit property such as a duplex or house with a rental suite) and living in part of it while renting out the remaining units with the goal of having the renters cover your mortgage. House hacking may also include buying a house and renting out rooms in the house to achieve the same purpose.

If you’re currently a renter and thinking of buying your own property, you may want to seriously consider house hacking. Why keep pouring money into rent if you can become a property owner and have renters pay your mortgage?

House hacking can also help you as a homeowner if you’re single and/or relying on only one income to cover the mortgage and other bills.

6. Becoming a Landlord

This is one of the most obvious ways to start investing in real estate. But it’s also something that freaks some people out. And of course you’ll need to have enough money for a down payment on a property, qualify for a mortgage, and be able to make the mortgage payments (in addition to paying property taxes, insurance, HOA fees, utilities, etc.).

We’ve all heard the horror stories of rentals gone wrong (from both the landlord and tenant perspectives).

And if the real stories aren’t bad enough, people start imagining what could go wrong as a landlord (aka the dreaded broken-toilet-at-3am-phone call).

It’s true that being a landlord comes with some big responsibilities. If you’re not handy and able to fix things, you’ll need to pay someone to do this for you. When I was a single woman and first acquired rental property on my own, this is what I had to do and it worked just fine for me.

Landlord responsibilities also come with some big rewards that include eventually owning property outright that produces recurring passive income in the form of rent. And the beauty of rental income is that rents gradually increase over time with the cost of living, regardless of what the stock market does.

A Few Final FAQs

Can You Invest in Real Estate With No Money?

The answer is yes—and no. The reason is it depends on what you mean by investing in real estate with “no money”.

All real estate investments involve the exchange of money at some point in the transaction (unless you found a guy who was willing to swap you his house for your truck but those transactions obviously aren’t common).

If you have no money, you can still invest in real estate with what’s known as OPM (other people’s money). This can be done by:

  • borrowing the money from someone you know
  • using a line of credit or equity in your home
  • a no-money down mortgage (such as a USDA home loan)
  • seller financing (also known as a purchase-money mortgage) where the property owner is willing to finance the mortgage possibly with no down payment
  • rent-to-own (also known as a lease option) where the renter pays higher rent with a portion of the rent going towards their future down payment on the property
  • investment partnerships (you provide the sweat equity to fix a property while your partner provides the funds; then you sell or rent the property & share the proceeds)

Is it Worth it to Invest in Real Estate?

There’s definitely money to be made in real estate. However, it depends what kind of real estate investing you’re interested in, what kinds of risks you’re comfortable taking, and the skills you have (including your comfort level working with math and numbers).

And remember—you can lose money in real estate too. So do your homework first.

Finally, keep in mind that at the end of the day, you need a place to live as well. If the only real estate investment you ever made was a place to hang your hat and call home, wouldn’t that be one of the best investments you ever made? Especially once the property is paid off—and it’s ALL yours.

Decision time. Which of the best ways to invest in real estate above gets your juices going? Need more info? Drop us a quick line below and tell us what questions you still have that you’d like us to research and answer for you.

About the author 

Leona Werezak

Leona Werezak is a freelance writer who enjoys writing about personal finance and health & wellness. When she isn’t writing or wearing her nursing hat, she’s coming up with new business ideas or scoping out her next rental property.

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