Aside from your main residents, there are many options to choose from when you decide you’re ready to invest in real estate.
Let’s go over the 2 options that popped into your head first
1. Buy a Rental Property
This seems like the most common first thought when investing in real estate, and for a good reason. Purchasing homes or multifamily units and renting them out is a great way to produce extra monthly cash flow.
To do this, you have to purchase a house that has a combined monthly mortgage payment, home insurance payment, and property tax payment lower than the rent the property commands. There are several ways to do this – from buying in an area with high rents, to putting a lot of money down so that your mortgage payment is low.
Depending on who you talk to, rental properties can be very lucrative. And, if you do the upfront work of finding those hidden gems, you can let a property management service do the rest and rental properties can be a form of semi passive income.
2. Flipping Houses
Flipping homes can be a bit risky, but also extremely rewarding. Flipping a house is the sum of purchasing homes under market value, fixing them up, and then sell for a profit.
To be a successful flipper, you need to hunt down those bargain homes – the less work you have to do, the better. The ideal flip home would be one that only needs minor cosmetic repairs. You could then make the home look more aesthetically appealing and sell for profit.
When you decide to flip homes, you have to prepare yourself for the possibility that the home may not sell fast – or for much of a profit. You take a big chance when flipping homes, which is why you have to pay special attention to the homes location, needs, and price. However, if you have the knack for flipping houses, you could find this to be one of the best investments you’ve ever made.
Now, let’s talk about the other options you have to invest in real estate!
3. Rent A Portion Of Your Existing Home
If you aren’t sold on the thought of purchasing a home only to recoup your money little by little, you could first test the waters by renting a portion of your house. You have a couple of options to do this.
First you could rent a spare room in your home or you could rent the basem*nt. If you’re yet to purchase your first home and like this idea you could even buy a duplex and live in one apartment and rent the next.
The advantages to renting a portion of your house is that you get to watch your tenant closely. It’s less likely that a tenant will try to stiff you for the rent payment when you’re in the same household. Renting a portion of your house also gives you the ability to get a feel for what it’s like to be a landlord without making such a huge monetary investment.
4. Real Estate Investment Trusts (REIT)
If you think real estate is a great investment but don’t want to get quite so hands on, you could take your real estate investing in the stock market.
Real Estate Investment Trusts (REIT) are great ways for you to invest in real estate without being actively involved. An REIT is a fund that is setup to invest in mortgage instruments, bonds, and stocks in the real estate niche.
There are a few different types of REITS; equity, mortgages, and hybrid. An equity REIT invests in properties, a mortgage REIT invests in mortgages, and a hybrid is the mixture of the two. All three typically offer high yields – basically you get paid back from the interest others are paying on their mortgages.
You can invest in a REIT at your favorite broker.
4. Buy Commercial or Industrial Property to Rent Out
Obviously what this looks like varies quite a bit, but it could be a strip mall with multiple businesses housed in it. It could also be a triple net lease situation where you own the building and land where a business like CVS operates. Or it could be warehouses that businesses rent for storage or manufacturing.
5. Self-Storage Facilities
These days it seems that people have more and more stuff and need places to house it. As a result, self-storage facilities have popped up all over the place. Storage units offer people convenience at a relatively affordable price.
Storage units are often self-service because it reduces the administrative work involved. Customers come into the office to sign their rental contract and make payments. That’s the last you’ll often see of them if they have a successful experience at your facility. You have more time to manage your grounds, take care of bills, and ensure the safety of the property stored at your location.
6. Short-Term Rental / Airbnb
A short-term rental (commonly referred to as a vacation rental), is the leasing out of a furnished property on a short-term basis. Depending on the owner, rental location and a number of other factors, these properties are rented by the week or by the night.
Many owners of short-term vacation rentals rent their property for the majority of the year when they are not using it themselves.
They have become a hugely popular alternative to hotels in the last 20 or so years, most notably with the surge of sharing economy websites such as HomeAway, Airbnb and VRBO.
These are more flexible than long term rentals, generally accrue less wear and tear, and generate higher rental rates. On the flip side, your income is not guaranteed like a long term rental.
As we’ve seen, real estate investing isn’t always just about buying a home and renting it out. The field is much more varied and diverse than that.
Now, of course, this list isn’t even close to being exhaustive. There are many more ways to invest, ranging from relatively passive to extremely active, and they vary of risk.
Personally, I don’t know of anyone who invests in all of these ways. That may be too much for one person to handle. Most often, it seems that successful real estate investors choose a couple and get to know those niches extremely well. The hard part is deciding which ones suit you and your interests the best.
If you want to start your investment journey, or want to dive deeper into the one you have rolling, we’d love to help you in any way we can.
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