Ways to Invest in Real Estate
Investing in real estate is not reserved for the wealthy. There are numerous opportunities anyone can invest, even for as little as $10. Understanding the markets can help guide your decision. It depends on how much control you want and how much risk you’re willing to take.
Ways to Invest in Real Estate: REIT
The first way that you can invest in real estate is actually on the stock market. You can buy stock in a Real Estate Investment Trust (REIT). These are companies that raise funding through common stock. They use the funds to purchase assets. Typically, the assets fall under certain classes and categories. You can find funds that focus on residental, commercial, and even hospitality real estate. These stocks offer usually high dividends for their share holders. To be considered a REIT, they have to go through rigorous qualifications. In the end, a REIT is a great way to invest in real estate without shelling out thousands on a down payment. I caution though that sometimes dividends may be too good to be true.
Ways to Invest in Real Estate: Investment Funds
The next way to invest is very similar to REITs. But, instead of buying shares on the stock market, you invest in a fund through a specialized company. Fundrise is one such company that takes funds from multiple investors and uses them to purchase real estate. You can choose how risky (and reward) you want to place your investment. Some platforms even let you choose the specific investment you want to contribute to. There are management fees involved, but the control and flexibility gives you the opportunity to negate the cost.
Ways to Invest in Real Estate: Buy Real Estate
This last one should be no surprise. If you want to invest in real estate, buy real estate. There are multiple layers, however, to this approach. It all depends on you and your unique situation and skillset. And, as such, each has different requirements that may not fit into your lifestyle. Either way, make sure you develop your Core Four when you decide to move forward on one of these options.
Traditional Rental Property
This is the classic investment option. You live in one house/location and you buy another property for the explicit purpose of renting it out. Typically, you need to be able to contribute at least 20% down. Mortgage companies usually only lend 80% of the home value, or loan to value (LTV). If you want to contribute more and lower the LTV, you may get better interest rates or closing costs. The down side to this is, of course, the down payment. Not many people can afford 20% of the purchase price for a turnkey property.
Value Add, or BRRRR
Value add is a great way to buy value in a property from the get go. If you find a deal that needs a little work, your potentially buying value right away. Factor in your repair costs into your purchase. You can then flip the property, or Buy, Rehab, Rent, Refinance, Repeat (BRRRR). Additionally, the down payment is lower because the loan is lower. If you can spread the loan over time, you distribute the debt over time. Ideally, you can incorporate that payment into the overall of the property when you rent it out. That way someone is paying your debt for you. Or, if you flip, you get that debt paid off when you sell the property. If you are purchasing this property to live in, even better. You can reduce your down payment requirement with an FHA loan or a VA Loan (0% down!).
House Hack
Speaking of living in the property to bring value to your investment. House hacking is a great way to add income to your current or future residence. The idea behind house hacking is you rent out a portion of your property to generate income. There is a couple of ways to accomplish this. The first method is to rent out an extra room. This is probably more ideal for a single person or a couple without a large family. Renting out a room may cut your mortgage in half, depending on the market. The other way is owning a property with two or more private dwellings on it. This could be a duplex, triplex, or a granny flat above the garage, for example. House hacking is one of the greatest way to dive into real estate investing.
Conclusion
As I said, you can invest in real estate in many different ways. You are not limited to just one either. If I could advise my younger self, I would have house hacked my first property and invested in REITs along with my other stocks. But, as an “adult,” I started with REITs and eventually started a business with BRRRRs. Everyone is unique, choose your adventure!
Disclaimer
Once again, I am not a financial advisor. These tips are some things I have validated with my own personal experiences. If you feel you need more personal advice, please consult a professional financial advisor. Dont forget to check out the Book List for published authors on this topic!
