If you are thinking of getting into investing, you may have seen experts and websites alike advise that investing in Real Estate, if you can is a great way to earn reliable, and often high, returns. There are several ways in which to invest in real estate if you are able to, it can earn you passive income, even becoming a very lucrative stream of income, it can be relatively easy to get into and help to diversify your portfolio.
Forbes describes Real Estate investing as one of the safest investments you can make, writing: ‘Real estate investing is safe and secured by the asset itself — the building. Rarely will you see your investment lose value and if so, it’s usually only for a short period of time. Unlike fiat currencies like the dollar, real estate doesn’t lose value to inflation year after year — it performs better. Smart investors can even set themselves up well in down markets by buying value-add assets such as many did after the housing bubble burst in 2008.’
One of the primary ways in which you can invest in Real Estate is to become the owner of a rental property. Although be sure to understand the undertaking of becoming a landlord, you will need to manage tenants, and even have a level of do-it yourself and renovation skills. However, if you prefer, you can use an agent of some sort to manage your letting property, (at a fee) if you would rather not deal with tenants. And you can outsource repair work to local tradespersons.
This particular avenue of investment does require a substantial amount of capital up front, as you will need to at least put a deposit down and apply for a mortgage on a house – however, there may be some alluring offers that you can access when looking to purchase a rental property. So be sure to do your research first. Further, whilst a mortgage will require you to make regular payments, it will also mean that you are more likely to be able to afford the property, eventually earning a larger profit once you have finished making the mortgage payments. Rental properties provide regular income, can be tax deductible and maximizes capital through leverage.
If you do invest in property, via purchasing physical buildings and renting them out, Forbes also points out that you can make your investment grow in value, explaining: ‘with real estate investing, your asset not only appreciates naturally with the market, but you can also force appreciation. Think of it like this: Natural appreciation occurs over time as the general market for real estate inflates. Forced appreciation is the revenue that can be made from the money you put in. New windows? That’ll bring in value. Just got the roof re-done or renovated some interiors?
That raises your selling price, too. The reason for this is as you renovate, you can increase the rents and the increase in rents forces the value up. There are many things you can do to force the appreciation of your property and this can make real estate investing a real cash cow.’
If you are really into DIY or are significantly experienced in property, house flipping can also be a lucrative investment opportunity. However, it involves a significant amount of capital, time and either your own renovation ability or the ability to outsource for renovations. It is typically a long-term, hands-on investment and you will need to have a good level of market knowledge – be savvy in knowing when a property can be improved to make a profit and be able to wait for returns. The property may take a long time to sell, or you may want to wait until the market has improved before you sell.
Other ways to invest in property include Real Estate Investment Groups (REIGs) which are for people who want to own rental real estate, but not run it. Investopedia describes REIGs as: ‘Investing in REIGs requires a capital cushion and access to financing. REIGs are like small mutual funds that invest in rental properties. In a typical real estate investment group, a company buys or builds a set of apartment blocks or condos, then allows investors to purchase them through the company, thereby joining the group.
A single investor can own one or multiple units of self-contained living space, but the company operating the investment group collectively manages all of the units, handling maintenance, advertising vacancies, and interviewing tenants. In exchange for conducting these management tasks, the company takes a percentage of the monthly rent.’ Real Estate Investment Trusts on the other hand, act like any other stock, bought and sold on the major exchanges.