Over the last 50 years, real estate has become one of the most widely sought-after investment vehicles. And of the most basic ways to invest in it is to buy and rent out properties. It’s a strategy that has become lucrative for landlords. And it’s easy to start it up. You purchase a property for a portion of its total cost and pay the rest with interest over time.
This, however, is not the only way to invest in real estate. Others don’t even involve buying a house. This is one of the reasons why it’s become popular. It’s a great alternative to diversifying your own asset portfolio without focusing on stocks and bonds. And you can even do it if you’re new to investing. In fact, Business Insider believes real estate investments are more accessible to
beginners compared to other forms of investments.
In this article, you’ll understand how the real estate investment market provides wealth to its investors. You can use it as a guide on how to choose which method or form is
suitable for your portfolio.
REITs
With REITs or real estate investment trusts, you can invest in large-scale real estate that produces regular income for its investors. Sounds good, right? Through a REIT, you earn a share of income from commercial real estate (CRE) investments without ever buying a CRE property, which is, by the way, reserved for high-net-worth investors.
CRE properties often include shopping malls, hotels and resorts, office buildings, warehouses, and self-storage facilities. REITs, the companies that own and operate CRE properties, buy and develop them for income-generating purposes as part of their asset portfolio.
There are two types of REITs. The US Securities and Exchange Commission (SEC) suggests that knowing the difference between the two can help you understand what benefits you can get from them and what
risks are involved when investing with them.
REITs are either publicly traded or non-traded REITs. Publicly traded REITs are registered with SEC and openly traded on a stock exchange market. Non-traded or non-exchange traded, REITs may be SEC-registered but are not traded publicly.
RELPs and REIGs
REIGs or real estate investment groups build or buy CRE properties and then sell them to investors. These investors then become part of their group. This option is perfect for aspiring investors who want to own CRE but don’t want to be troubled with managing and operating them.
REIGs actively manages the maintenance and advertising of their CRE properties. They also decide which businesses are suitable tenants for their buildings. Because of this, REIGs takes a portion of the monthly rent.
RELPs, or real estate limited partnerships, also builds or buys CRE properties like REIGs. These properties are managed by a real estate development firm or a property manager, who is considered the general partner of a RELP. You become a limited partner when you invest in one or more of their CREs.
RELPs, however, are limited for a reason. They only exist until their properties are sold. The companies are dissolved once the sale is done.
House Flipping
Flipping houses is the practice of purchasing residential properties, often for foreclosures, that are in some level of disrepair and then improving or renovating them. Once fully renovated, house flippers resell them in the market.
House flipping is suitable for people with significant knowledge about real estate renovation, marketing, and valuation.
Real Estate Mutual Funds
Real estate mutual funds are companies that invest in real estate property management firms and REITs. Many small investors choose this option because it allows them to invest even with little capital. It’s also attractive to investors who are choosy with their investments. Real estate mutual funds can allow their investors to select which properties to invest in through REITs.
Rental Properties
The most common form of real estate investment for small investors is purchasing a rental property. Huge rental property companies today started small following this route. If you do the same, however, be prepared to become a landlord.
A rental property landlord has many responsibilities. You have to find tenants and maintain your property. You will also handle the payment for insurance, property taxes, and mortgage. To make all of this easy, you can hire a property manager.
Choose What’s Suitable for You
To be successful with real estate investing, you need to keep in mind three practices.
One, save up for your investment because real estate is not cheap. Two, start small. You don’t have to invest in a multi-million property to become a real estate investor. Last, know the supply and demand for real estate properties in your local area. That will help you find a suitable property for your budget.
Just remember, though, real estate investing takes time before you see any real profits. So be patient.
