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Updated on Thursday, December 6, 2018
In the United States, the housing market is booming. According to the U.S. Census Bureau, the average sales price of a new home was $395,000 as of October 2018. That’s a 44% increase from the average sales price of a new home just 10 years prior.
If you want your money to work harder for you and are looking to invest, putting your money in real estate could be one option to consider.
6 ways to get started in real estate investing
Real estate investing — where you use a portion of your savings to purchase property in some form — can be a lucrative way to grow wealth. According to Stefany Marcelino, co-founder and managing partner of Orlando City Corporate Housing, it can be an excellent source of income as you age.
“Investing in real estate can have a huge advantage for you financially,” she said. “When it comes to planning around your retirement and around old age, having real estate investments and having assets will help in that aspect of your life. It’s something that allows you to be more financially independent.”
If you’re not sure how to begin, it’s important to know there’s more than one way to invest in real estate. And you can get started without having hundreds of thousands in the bank.
Here are six ways you can invest in real estate.
1. Buy a rental property
When you invest in a rental property, you buy a house or condo with the intention of renting it out to someone else and collecting rent.
To do so, you usually need to be able to qualify for a mortgage and have enough money for a down payment as well as a cash reserve for repairs and maintenance costs.
“As a landlord, you have to plan ahead for unexpected expenses,” said Marcelino. “You’ll get maintenance requests like ‘My appliance broke’ or ‘I need a new AC,’ so you do need to to have a bit of an emergency fund in your bank account to be able to fix those unexpected things.”
You’re also responsible for finding and vetting tenants, collecting rent, and doing the necessary repairs yourself (or hiring out for the job), so it can be a significant time investment. And if a tenant falls behind on rent, you need to be prepared to handle the eviction process.
Investing in rental properties can be rewarding, but it’s not for everyone. You need to make sure you have the time and cash cushion to handle it.
2. Flip homes
Made popular by reality television shows, flipping homes is a common type of real estate investing. With this approach, you purchase a run-down home with the intent of fixing it up and reselling it for a profit.
While the profits can be large, so are the expenses. You’ll likely need an army of contractors to make the house sale-ready, which requires a significant upfront investment. And if you took on debt to purchase the home, you’ll need to continue paying down your loan until the home sells, which can take months.
Flipping homes is not for the faint of heart. You need to have a large reserve of cash, the knowledge and ability to do at least some of the work yourself, and a high comfort level with risk.
3. Invest in REITs
Investing in real estate on your own can be expensive and time-consuming, but real estate investment trusts (REITs) can be a great solution. A REIT is a company that owns and manages profitable real estate, such as apartment buildings, shopping malls or storage facilities.
Many REITs are publicly traded on the stock market, so you can buy shares of a REIT like you would any other type of stock.
For beginning real estate investors, REITs can allow you to dip your toes into the investing pool without having to invest a ton of money. Instead of needing thousands to buy real estate yourself, you can get started by buying just one share. And you don’t need to worry about day-to-day operations, as the REIT manages that aspect for you.
However, because you are only a shareholder, you have less control and little say in the investment. If you prefer a hands-off approach, that can be an asset, but it’s an important point to understand before you invest your hard-earned money. You’re also subject to the stock market’s volatility.
4. Consider real estate investment groups
A real estate investment group is an organization that buys properties and then sells them to investors as rental properties. They take the hard work out of running a rental property yourself; you provide the capital, and the real estate investment group handles the work for you.
Usually, you pool your money with a small group of other investors. When it’s time to make decisions, you work together to come up with solutions.
A real estate investment group can require a larger investment and more time than a REIT. And because you are involved in the decision-making, it’s important to have some foundational knowledge of real estate and renting.
5. Use an online platform
Crowdfunding is another way to invest in real estate. Rather than having to come up with hundreds of thousands of dollars yourself to invest in high-value real estate, you can pool your resources with other investors.
Online real estate crowdfunding platforms allow normal people to invest in real estate instead of limiting it to the super rich. You don’t need tons of money to get started; some online platforms have initial investments as low as $500. Here are two online platforms to consider.
- Fundrise: You can invest as little as $500 with Fundrise, and you can choose from a diverse range of investment opportunities, from manufacturing buildings to single-family homes.
- Prodigy Network: Get in on New York’s booming real estate market with as little as $10,000 with Prodigy Network. Investments include commercial buildings and hotels.
If you opt to invest in an online platform, you’re one of many investors, so you have less control over what happens to the property. It’s a hands-off approach that can be helpful for beginning investors but may be frustrating for more seasoned ones.
6. Buy a home
When you think of investing in real estate, you might think of buying properties other people live or work in. But buying a home for yourself is a form of investing too.
“Investment in real estate can be for anyone,” said Marcelino. “Even purchasing your own home to live in means you’re an investor because one day it will gain equity and you’ll sell it.”
Over time, your home can grow in value, so you can make a nice profit a few years down the line. And becoming a homeowner can be more affordable than you might think. Some mortgages require just a 3.5% down payment, making homeownership more accessible.
When it comes to investing in real estate, there’s a strategy for every type of investor and every budget, from beginner to advanced. By researching your options, you can diversify your portfolio and invest wisely, building another source of income.