How to Invest in Real Estate

Investing in real estate can be a really exciting and satisfying experience if you know what you are doing and the proper steps to take. Unlike investing in stocks and bonds, real estate investors can buy a property using leverage, paying a portion of the total cost upfront and then paying off the property over time. The main way that real estate investors make money is by becoming the landlord or a house flipper. Investing in real estate can be a great source of income if done properly. Here are some simple ways to invest in real estate and how to make money from these options.

Rental Properties

Owning rental properties is great for people with a DIY mindset and those who do not mind managing tenants. This option does require a substantial amount of capital to finance initial renovation and maintenance costs, as well as money to cover vacant months.

Any kind of investing comes with its downfalls and risks. There are many advantages to SFR investing, but there are also some disadvantages.

Pros of Rental Properties

• Provides regular income and your property can appreciate in value over time
• You can maximize capital through leverage
• There are many tax-deductible expenses associated with owning rental properties

Cons of Rental Properties

• Managing tenants can be challenging
• Potential damage to property by tenants
• Reduced income due to vacancies

Owning a rental property is not for everyone, but if you believe you can handle managing tenants and being proactive about maintaining your property, this can be a great way to make money.

House Flipping

If you have experience in real estate, marketing and renovation, house flipping may be a great option for you. House flipping requires capital and the ability to oversee and achieve repairs. This can be considered the "wild card" of investing because it is never guaranteed to make as much money as you may hope to on a property.

Pros of House Flipping

• Can offer quick returns
• Capital is tied up for a shorter period of time
• Be your own boss

Cons of House Flipping

• Requires a deep knowledge of real estate and the current market
• Hot markets can change unexpectedly, putting flippers into debt

House flipping can cause a lot of stress from finding the right property, anticipating costs involved, dealing with contractors, realtors and local ordinances, meeting deadlines, and finding a potential buyer.

Real Estate Investment Groups

This option is ideal for people who want to own rental real estate without the hassle of actually running the property. Investing in REIGs requires capital and access to financing. They are essentially like purchasing small mutual funds that invest in rental properties where an investment group or company buys or builds a set of apartment blocks or condos, then allows investors to purchase them through the company. A single investor can own one or multiple units of self-contained living space, but the company who operates the investment group collectively manages all of the units, including handling maintenance and taking a portion of the monthly rent.

Pros of Real Estate Investment Groups

• Hands-off approach
• Provides income and appreciation

Cons of Real Estate Investment Groups

• Risk of vacancy
• Fees similar to those associated with mutual funds
• Bad management is possible

Online Real Estate Platforms

Real estate investing platforms are for investors who want to join others in investing in a bigger commercial or residential deal. These kinds of investments are made online through real estate platforms, also known as crowdfunding. This option still requires capital but not as much as what is required to purchase a property outright. These online platforms connect investors who want to help finance projects with real estate developers.

Pros of Online Real Estate Platforms

• Can invest in single projects or portfolios
• Geographic diversification

Cons of Online Real Estate Platforms

• Tend to not make money during lock-up periods
• Management fees

In Conclusion

Investing in real estate can be a fantastic way to make money and add to your real estate portfolio. With everything else in real estate, investing can have its risks and can have both a profit potential and a loss potential.