So, it’s been a long day. You decide you want some time to relax, so you turn on the TV or power up your phone and browse for some entertainment. Out of all the dramatic, comedic “reality” shows, one series, in particular, stands out to you: house flipping an investment property.
Perhaps you become inspired to make a risk-reward investment or want to build wealth and cash flow on the side, or just want something new and passionate to get into. No matter why you want to get into real estate investing, the next question is "now what?"
Maybe it’s the excitement of improving property or it’s simply convenient to make rental income from your house or other rental properties, but investing in real estate (when done correctly) can be an extremely fulfilling venture. Plus, these investment opportunities often come with financial freedom Some investments give near immediate satisfaction, while others take many long hours of work. A few investment strategies include:
- House flipping and renovations
- Commercial properties or commercial real estate
- Renting out your home
- Crowdfunding
- Real Estate Investment Trusts (REITs)
- Real Estate Investment Groups (REIGs)
- Real estate property management
None of the ways listed above are without both pros and cons! It is important to acknowledge the difference between "can" and "will." In the massive world of real estate investing, no matter how good of an idea something might be, there are never any guarantees that all invested money will be made back (due to factors such as the housing market, interest rates, the down payment, market value, and more).
Direct vs. Indirect Real Estate Investing
When the term “invest in real estate” comes to mind, it isn’t uncommon to immediately think about direct real estate investing. Direct investing is when you interact directly with a real estate market property to prime it, improve it, rent it, and/or sell it. For example:
Avery believes she has a keen eye for property value, interior decorating, and landscaping. She happens to have enough money to invest in a single-family home by the side of a lake. With a little luck and a lot of help, Avery spends less than a year turning what once appeared to be little more than a shack into a property worthy of pictures.
She is then able to sell it for a lot of money (more money than she spent purchasing the estate and the materials and labor to improve it). By the end of the day, the long, expensive real estate investment becomes well-worth the hardships in-between.
Indirect real estate investing is just that: indirect. Instead of physically buying a property or directly interacting with the house, the indirect investment gives you the chance to spend minimal time hand-picking real estate through the purchase of shares and real estate trusts (REITs). An example would be:
Avery thought that she did pretty well investing in house flipping, but doesn’t have as much time as she had before. She still wants to invest, so she decides to check out some REITs. The way she decides to obtain a few REITs is by going to a stock broker to purchase the trusts.
What Kind of Property Are You Looking To Invest In?
There are four main lot types of properties for real estate investors to invest in: residential, commercial, industrial, and land.
- Residential property: Used to be lived within, such as single-family, condos, and multifamily properties.
- Commercial: Used most commonly as a place of work, such as an office space, hotels, and restaurants.
- Industrial: Used for manufacturing goods, such as warehouses, factories, and showrooms.
- Land: Used for outdoor activities, especially if the property is big enough to support agricultural and recreational use.
Understanding This Article’s Scales of Rating
To make things a bit simpler, below is the legend of the scales used to rate real estate investing:
Difficulty Scale:
- Easy: Minimal effort is required. The upfront/initial fee may be the biggest expense.
- Difficult: More than "easy,” but not nearly as time and money-consuming as “demanding.”
- Demanding: A lot of time, money, and knowledge must be put in to make this investment worthwhile.
Time Investment (until making profit):
- Minimal: Quick, within days investment returns.
- Intermediate: Several weeks or months of work.
- Extreme: Many months to years to re/gain revenue on the investment.
Money Investment:
- Inexpensive: $1000 or less to invest
- Varies: The price varies enough to be more than inexpensive but less than expensive.
- Expensive: $100,000 or more to invest.
Risk Level:
- Low
- Mid
- High
1. Rent Out Your Property
Difficulty Scale: Difficult
Time Investment: Extreme
Money Investment: Varies
Risk Level: Mid-High
Perhaps one of the easiest investments to understand, but one of the hardest to manage is to go solo and rent out living space. Renting out your house for large, temporary gatherings, and leasing space to those who will pay a monthly fee, are just a few of the many other methods to use your property as an investment. It's a simple concept, but the cons of such an endeavor are worth reviewing.
Although renting out a house sounds straightforward, the process is far from it. If you do it alone, the weight of tenant management is placed solely on you. It's a fact of life that not all tenants will be ideal for renting, and property damage, late payments, and miscommunication are all leading factors in ruining a renter-tenant relationship. Renting is a communication-based system that relies solely upon your choices on what investment and help you choose to receive from more professional companies.
The ability to generate passive income, on the other hand, is always enticing, and for those without a real estate portfolio, renting property can be one of the less complicated versions of real estate investment.
2. Real Estate Investment Groups (REIG)
Difficulty Scale: Difficult
Time Investment: Intermediate
Money Investment: Varies
Risk Level: Mid
Risk is inherent when multiple people are putting money down for the same thing. The group dynamic of REIGs creates variables (such as human emotion) throughout the investment process, providing the ability to make rash group decisions that an individual may have put more time into contemplating.
However, REIGs provide relief from individual decision-making and grant social interaction that most other real estate investment types don’t. The trick is to find an REIG with a good track record and knowledgeable leaders to provide your investment with the best possible chance of success.
3. Crowdfunding
Difficulty Scale: Easy
Time Investment: Minimal
Money Investment: Inexpensive
Risk Level: Mid-High
Crowdfunding is very similar to REIGs in that it requires a group of people to invest in a specific property. However, crowdfunding is done online, while REIGs are the old-fashioned, in-person investment method.
If you want to diversify your portfolio, crowdfunding is a good way to combine social media and investments in one place. When a property with high potential comes into existence, investors can work together to pool money, as opposed to paying expensive upfront costs. With great power comes the unfortunate retaliation that not everyone has the same tolerance of risk as you do.
4. Real Estate Investment Trusts (REIT)
Difficulty Scale: Easy
Time Investment: Extreme
Money Investment: Varies
Risk Level: Low-Mid
REITs are REIG’s older brother. REITs are typically professional, strict, and well put together by companies that invest in real estate. If you would prefer someone else to take care of your investments, with your money, then REITs are just what you’re looking for.
REITs allow the investor to treat real estate like a brokerage account, where trained real estate investment brokers assist in making the best possible trades. The time it takes to earn back investments, however, can be many years of waiting and watching what the stock market does.
5. House Flipping
Difficulty Scale: Demanding
Time Investment: Extreme
Money Investment: Expensive
Risk Level: High
Whether it's a curious little house you’ve always felt inspired to fix or you’re interested in purchasing auction property from the U.S. Government, there is always potential in investments. House flipping is undoubtedly the most expensive way to invest in real estate and takes a keen eye to get the most out of any damaged property.
The result is that when you step back and others appreciate the effort you’ve put in, house flipping becomes a very profitable, worthwhile, and fulfilling endeavor.
Conclusion
Here’s the bottom line: The best way to invest in real estate entirely depends upon your situation. If liquidity is a concern, real estate investing might not be for you.
However, should you take the next steps to begin your venture into the world of investment, the probability of earning passive income and active income increases dramatically! In other words, if you have the money, investing in real estate can be very worthwhile. Now all you have to do is figure out how you want to invest.
Sources:
What Is Real Estate? | Investopedia
Real Estate Sales | RealEstateSales.gov
