Building wealth through real estate is a fun journey that requires resiliency, focus and hard work. This article covers several paths to real estate investing and what you can do to succeed.
There are several ways in which you can invest your hard-earned money. Real estate is one of the most popular methods to achieve your long-term financial goals.
However, there are multiple routes within the real estate realm. It can be challenging to decide which strategy you want to pursue, but we will explain everything you need to know in this article.
Understanding the Different Real Estate Investments
As you form your real estate investment strategy, you will likely begin with one of the six vehicles below. Each strategy has a different risk tolerance and upfront investment requirement.
Before choosing your ideal route, you should ensure it aligns with your financial goals and capabilities.
REITs (Real Estate Investment Trusts)
A real estate investment trust (REIT) is a firm that operates, owns and provides financing for real estate that produces income. These properties generate income for their investors, much like mutual funds.
REITs pool and organize funds from several investors. Once you contribute money to a REIT, you can earn long-term income through dividends without having to actively manage or buy the property itself.
REITs are a steady, consistent income stream for the investor. These investment vehicles are also liquid and act like publicly traded stocks.
You could start your real estate investment journey today by simply contributing a small sum of funds to a REIT. What types of properties do REITs cover?
You can invest in many property types, including cell towers, apartment buildings, hotels, data centers, offices, medical facilities, warehouses and retail centers.
Real Estate Crowdfunding Platforms
Real Estate crowdfunding utilizes small sums of capital from many investors to finance a new building or business venture. Because of accessible networks like crowdfunding websites and social media, crowdfunding brings entrepreneurs and investors together.
The goal is to build a community of entrepreneurs and investors while rallying around a common investment. Investors can invest only $10 and then choose from hundreds of projects.
Residential Real Estate
Residential real estate investing is for properties developed for people to live. Local zoning laws and ordinances shape these areas. A residential real estate property cannot be for industrial or commercial purposes.
Investing your money into residential investment properties can be profitable. However, it could require hard work and hands-on attention.
You can always outsource some work to a property management company. Working with the property can provide valuable experience too.
- Long-Term Rental — a house that the owner will rent to a tenant for a fixed amount of time. In return for use of the house, the tenant pays a monthly fee. Long-term rentals can have 6-month, 12-month, or 24-month leases.
- Vacation Rental — a vacation rental is like a traditional rental, but it is for a short amount of time. A real estate investor might be a property in a tourist area and then rent out the property for a few days or weeks.
- Flipping a House — an investor will buy a house and then fix the house in several areas. By investing time and money into correcting any house issues, the investor can then resell the updated house for a profit.
- Microflipping — Microflipping is a short-term investment that involves buying a rental unit in need of repairs and renovations, and then reselling it for a quick profit. The investor will not typically make repairs, but they will reassign the contract to someone else.
- ADU (Accessory Dwelling Units) — an accessory dwelling unit is an independent, smaller residential unit on the same lot or property as a standalone property or single-family home.
Commercial Real Estate
Commercial real estate involves investing in a property utilized solely for business-related activities. Instead of providing people with a space to live, a commercial property allows a company to operate in the building.
Most of the time, tenants will rent these spaces to conduct revenue-generating activities. It could also be a space to house administrative employees like accounting, finance and human resources.
Commercial real estate expands to many categories of retailers, including restaurants, strip malls, hotels, resorts and health care facilities. However, the four “classes” of real estate are office spaces, retail, industrial and multi-family rentals.
Raw Land or Farmland
Raw land or farmland is a plot of land that a party has not prepared or developed for construction. This type of investing is popular for a couple of reasons: increasing demand and limited supply.
Because of these two factors, the land is always an appreciating asset. Investing in farmland or agriculture means moving your money behind crop and food production, processing, and eventually distribution.
If you can do farmland right, there is a massive opportunity. As the world’s population grows with limited land, the investment is valuable.
Pre-construction is one of the fastest and highest returns on investment within the real estate space. Pre-construction condominiums are some of the most valuable options on the market.
Locations like Las Vegas, Miami and Myrtle Beach experience a pre-construction uptick. Pre-construction is attractive for a few reasons.
It will give investors a lower value upfront, leaving the opportunity for a high return on investment. From there, it acts as a rental property. Depending on the contract, you can hold the property for a while, collect monthly rental income and then sell it for a profit.
Which Real Estate Investment is Best for You?
You should invest in real estate that aligns with your financial goals, budget and time commitment. Each of the options above requires a different level of these three components.
If you want to be hands-off and simply get into the game, REITs and crowdfunding are the way to go. If you want to actively manage a property, commercial or residential real estate is a prime option.
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Real Estate Investment FAQ's
Still unsure about real estate investing? Below are some of the most frequently asked questions regarding the topic.
All of the options we listed could have high long-term earning potential. Put simply, properties with a higher return on investment (ROI) will be the most profitable investments.
The amount of money you put down, interest rates and location will all play a factor in what your monthly profit and ROI will be.
Traditional rental properties and vacation rentals are the most advantageous real estate investments right now.
Becoming a real estate investor is as simple as investing in a REIT on a public stock exchange. However, here is a list of simple steps:
- Decide your investment strategy.
- Research, study and become an expert in the space.
- Evaluate the market by talking with realtors and other experts.
- Gain access to funds and working capital.
- Learn real estate laws and contract verbiage.
- Be resilient.
If you are looking for a hands-off way to get into the real estate investing game, REITs are the best option. If you want to learn the hands-on way, a multi-family residential property is a way to go.
You can live in one half of the house while renting the other half out to someone else. Therefore, you can reside in and learn how to operate a rental property.
For just $1, you could invest in a REIT on a public stock exchange. However, there are creative ways to gain financing for future real estate investments.