1. Buy rental properties
Buying a property to rent is certainly the most popular option when it comes to investing in real estate, however, the process is not as simple as buying a property and letting it out. There are several decisions an investor needs to make.
Alongside picking a good location, as a landlord, you need to consider whether you would prefer to rent the property over a long period, such as a year, or whether you would prefer to let it over shorter periods.
Perhaps you would prefer to list the property on Airbnb and capture lucrative short term rentals. Holiday homes are also another avenue to consider. It may be possible to purchase a property that is used by yourself for several months of the year and then let for weekly holiday rentals.
Whatever the decision, you need to be sure that the investment will become an asset, with cash flow remaining positive.
Benefits
- Returns will include passive rental income and capital appreciation.
- Can amplify returns by using leverage to purchase property.
- Flexibility for short or long-term tenants.
Risks
- Negative cash flow if costs outweigh returns.
- Requires a high upfront capital and funds will become illiquid.
Read the guide: How to buy/invest in a rental property
2. Invest in commercial real estate
Commercial real estate covers the majority of buildings that are not intended for residential use. These include warehouses, offices, retail premises, and multi-family units.
Commercial opportunities come with a larger price tag and, therefore, requires the highest amount of upfront capital. However, this also means bigger returns. There is a reason why the property moguls like to play in this arena.
The wider range of properties, each with unique variables, means a lot of real estate experience is often required. It is useful to have familiarity with legal frameworks and different rental agreements. Or have a team in place that does. Learn the basics and there could be significant money to be made.
Benefits
- Can offer the largest returns of any real estate investment option.
- Wider range of properties to choose from.
Risks
- Requires the most upfront capital.
- Significant levels of real estate knowledge must be applied to avoid complicated legal frameworks and unprofitable rental contracts.
Read the guide: How to invest in commercial real estate
3. Buy land
You don’t always need to purchase bricks and mortar to invest in real estate. Land can be just as valuable – sometimes even more so.
Buying land gives investors a different level of flexibility when compared with buying a property. There is no property to maintain and there is no need to rent the land to tenants. However, that’s not to say that the land could not be rented for commercial purposes if the location is suited.
Land could be held until a suitable outcome presents itself. The unique element of this option is that outcome is only limited by what developers can imagine utilizing the land for. When selling, note that land is often more valuable when planning permission has been secured.
Benefits
- Usually less expensive than purchasing a property.
- Land could be sold for multiple use cases at a later stage.
Risks
- Will need to be sold to someone that has a vision for development.
- Planning permission may not be approved.
4. Flip properties
Fancy yourself as a DIYer? Then flipping properties may be the right investment decision for you. The process involves finding a property that requires a little, or a lot, of TLC to bring it back to its former glory. Your aim is to add enough value to the property that you can sell for a profit.
While a lucrative idea, and one that is seemingly effortless on DIY shows, it is an option that requires a huge amount of effort. To truly turn a house around you need to have a creative vision, a solid network of laborers, and good negotiation skills to ensure a profitable purchase price. You also need to be an excellent problem solver, as issues can crop up on a weekly basis.
Benefits
- Can result in high returns over a shorter time frame.
- Property can be purchased using leverage to amplify returns.
Risks
- Requires a significant amount of time and effort to see a project succeed.
- Upfront capital is needed for both purchase and renovation work.
5. Stock market investing
While not an obvious option, the stock market can provide a good platform to gain real estate exposure. There are hundreds of stocks that are tied to the performance of the real estate market, which provides a great proxy for those not wishing to invest in properties directly.
Companies can include those that focus on home builds, mortgage providers, construction, and estate agencies. Alternatively, to diversify a position, mutual funds or exchange-traded funds (ETFs) could be acquired. The iShares U.S. Real Estate ETF contains 83 property-related stocks.
Most options can be accessed from traditional brokers or pension accounts.
Benefits
- Upfront investment can be low.
- Funds are much more liquid in comparison to direct property purchases.
Risks
- Stocks can experience volatile market movements.
- You have no control over the performance of a stock or collection of stocks.
Read the guide: How does the stock market work
6. Foreclosed properties
If a borrower defaults on a home loan the property is usually repossessed by the lender. The property is then sold by the lender for a discounted price to recoup losses. This provides an excellent opportunity for investors. By acquiring a property below the market price it can leave far more room for profits.
Foreclosed properties require slightly more research to find and while prices can be lower, options will be significantly more limited. Although it could be a dream deal, a property still needs to be in a suitable location and offer solid fundamentals to attract either tenants or resale.
Benefits
- Can provide an opportunity to acquire a property for a lower market price
- Lower market price means returns can be higher
Risks
- More complex legal process than acquiring a standard rental property
- Limited options may mean that a property may be unable to be viewed before purchase
Read the guide:
7. Wholesaling
One option worth considering if you have enough funds could be wholesaling. Wholesalers are ‘middlemen’ that profit from a property deal. There are two ways wholesalers can profit from a transaction.
The first is to buy and sell a house immediately. This involves the wholesaler purchasing a property at an undervalued price and subsequently selling the property for a higher price to a member of their buyer’s network. The two transactions usually occur within a few weeks of each other.
The second option is commonly referred to as a double closing. Unlike buying and selling a house immediately, a double closing involves both transactions completing on the same day. The money transfers from buyer to wholesaler, who remove their cut and subsequently to the seller.
Benefits
- The method is a quick way to turn a profit on a property.
- Funds can remain liquid once transactions are completed.
Risks
- Requires a network of potential buyers to find deals quickly.
- A wholesaler must usually purchase a property outright which means more money is at risk, if only for a short time.
Read the guide: Guide to Wholesale real estate investing
8. Invest in REITs
Real Estate Investment Trusts, or REITs, are a second method for investing in property indirectly. Acquiring equity in a REIT is equivalent to purchasing a share of a property, or a collection of properties. However, the properties are actually owned by one company.
The REIT could be residential-focused, such as Equity Residential, or commercial-focused, such as Realty Income. The properties are then managed and rented, with over 90% of taxable income paid as dividends to investors.
REITs can be an excellent way to gain exposure to the real estate market without having the hassle of owning your own property. You also have the freedom to invest as much or as little as you want.
Benefits
- Gain quick exposure to the real estate market without owning a property.
- Can provide monthly cash flow in the form of dividend payments.
Risks
- REITs are managed by a third party and are, therefore, beyond an individual investor’s control.
Read the guide: How to invest in real estate investment trust
9. Crowdfunding
Thanks to the wonders of technology investors no longer have to reduce ambitions when it comes to real estate investing. Property crowdfunding allows individual investors to pool resources and either buy properties or lend to developers.
Crowdfunding allows for participation in projects that would otherwise be out of reach for individuals – particularly commercial real estate. Returns are either gained as a share of rental income or as interest paid on a loan. Crowdfunding sites such as CrowdStreet and Equity Multiple open the door to every adult that wishes to wet their feet.
Benefits
- Provides a lower barrier to entry for commercial real estate.
- By gaining access to commercial real estate opportunities, returns can be high.
Risks
- The terms of a crowdfunding investment deal can be complex, and may not be applicable for the majority of investors.
- Many deals require investors to be accredited and need funds to be locked in for several years. Early withdrawal may result in a charge.
10. Online Real Estate investing platforms
These platforms connect developers with individuals wishing to invest. However, the difference here is that individuals usually require a high net worth ($1 million +) or a high-income salary (suitable for those earning over $100k annually).
Investors can either invest in the debt or equity of a project, with the intention of receiving monthly returns for carrying the risk. Many platforms usually require funds to be locked for a set period and, like crowdfunding, sometimes an investor must be accredited.
Benefits
- Platforms allow you to invest in real estate from the comfort of your own home.
- Flexibility to invest in either the debt or equity of a project.
Risks
- Many online platforms require proof of funds and are only accessible for high net worth individuals. Accreditation as an investor may also be needed.
- No control over the development of a project.
