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If you’ve ever owned a property, chances are you’ve never dreamed of being one: answering calls about oversized bugs and overflowing toilets doesn’t sound like the most glamorous job.
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But when done right, real estate investing can be profitable, even now that we’ve entered a high interest rate environment. Investing in real estate can help diversify your existing portfolio and become an additional source of income. Many of the best real estate investments do not require tenants to attend every house call.
The problem is that many new investors do not know where or how to invest in real estate. Here are some of the best ways to make money in real estate, ranging from low maintenance to high maintenance.
REITs allow you to invest in real estate other than physical real estate. Often compared to mutual funds, they are companies that own commercial real estate, such as office buildings, retail space, apartments and hotels. REITs pay high dividends, making them a common retirement investment. Investors who don’t need or want regular income can automatically reinvest these dividends to grow their investment even further.
Are REITs a good investment? They can be, but they can be varied and complex. Some things are traded on the stock exchange, such as stocks; others are not publicly traded. The type of REIT you buy can be an important factor in your risk-taking, as non-traded REITs are not easy to sell and difficult to value. In general, new investors should stick to publicly traded REITs, which you can buy through a brokerage.
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For this, you will need a brokerage account. If you haven’t already, it takes less than 15 minutes to open one, and many companies don’t require an initial investment (although the REIT itself may have a minimum investment).
You can also get more diversified real estate investment options by buying funds that have interests in many REITs. You can do this through ETFs or by investing in mutual funds that hold various REIT stocks.
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Real estate investment platforms connect real estate developers with investors looking to finance projects through debt or equity. Investors want monthly or quarterly distributions in exchange for taking a lot of risk and paying a fee to the platform. Like many real estate investments, they are speculative and unconventional – you can’t sell them as easily as you can trade stocks.
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The problem is that you may need money to make money. Many of these platforms are only open to accredited investors, which the SEC defines as investors who have earned or had a net worth of more than $200,000 ($300,000 with a spouse) in each of the past two years. Valued at $1 million or more, excluding primary residence. Options that do not meet this requirement include Fundrise and RealtyMogul.
Tiffany Alexy didn’t set out to be a real estate investor when she bought her first rental property at age 21. Then I was a senior in Raleigh, North Carolina, planning graduate school there, and I thought buying a house was better than renting.
“I found a four-bedroom, four-bath apartment on Craigslist that was dorm-style. I bought it, lived in one bedroom, and rented out the other three,” Alexei said.
The setup covered all his expenses and brought in an extra $100 a month in cash, far from change for a grad student, and enough for Alexie to take the real estate hole.
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Alexi broke into the market using a technique sometimes called home hacking, created by BiggerPockets, an online resource for real estate investors. This means you are occupying your investment property, or renting rooms like Alexi, or renting units in a multi-unit building. House Hacking allows investors to buy properties of up to four units and still qualify for a home loan, said David Meyer, the site’s vice president of data and analytics.
Of course, you can buy and rent entire investment properties. Find a rental with a lower total cost than you can afford. If you don’t want to be the one to show up with a tool belt to fix the leak, or even call that person, you also have to pay the property manager.
“If you run your own business, you learn a lot about the industry, and if you buy future properties, you come into the industry with a lot more experience,” Meyer said.
That’s how HGTV was born: You invest in an inexpensive house that needs some love, renovate it as cheaply as possible, and resell it at a profit. Called the house flip, the trick is a little more difficult than it looks on TV. With today’s high cost of building materials and mortgage rates, it’s more expensive than ever. Many home flippers are designed to pay off the house in cash.
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“There is a big risk factor because a lot of the math behind the flip requires a very precise estimate of the cost of the repair, which is not an easy task,” Meyer said.
Her advice: Find a partner with experience. “You may have the money or time to contribute, but look for contractors who can estimate costs or manage the project,” he said.
Another risk of flipping is that the longer you hold the property, the less money you make because you don’t get any income when you pay off the mortgage. You can reduce this risk by living in your home while it is being repaired. This will work as long as most of the updates are cosmetic and you don’t mind a little dust.
Finally, to get into real estate, you can rent out parts of your home. These measures can significantly reduce housing costs, which could keep people in their homes as they continue to benefit from rising property values.
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Adding roommates can make it easier for young people to pay their mortgages. But if you’re not sure if you’re ready, you can try a place like Airbnb. It’s a home trick for the commitment-phobic: You don’t have to hire long-term tenants, potential tenants are at least partially screened by Airbnb, and the company’s owners guarantee loss-proofing.
Renting a house seems a lot easier than the whimsy of real estate investing. If you have a spare room, you can rent it.
As with all investment decisions, the best real estate investments are those that serve you (the investor) who best wants to be that person. If you don’t have DIY skills, consider investing in real estate through REITs or crowdfunding platforms instead of going directly to property.
About the Author: Ariel O’Shea is an authority on retirement and investing, and has appeared on “Today,” “NBC Nightly News” and other national media outlets. Read more
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Sign up and we’ll send you nerdy articles on the money topics that matter most to you, as well as other ways to help you get more out of your money. CrowdStreet’s 2022 Best Places to Invest report lists the top private real estate investment markets in the United States. (Graph: Business Wire)
AUSTIN, Texas–( BUSINESS WIRE )–CrowdStreet, a leading real estate investment marketplace, has released its annual Best Places to Invest 2022 report. CrowdStreet ranks Austin, Texas as the best market for real estate investing commercial roots. Ranked nationally, followed by Raleigh-Durham, Nashville, Orlando and Seattle. The comprehensive report also breaks down the best locations to invest in seven real estate sectors: multifamily, rental, industrial, office, hospitality, retail and life sciences.
“We consider all types of real estate because transactions on our platform cover individual real estate opportunities in all segments of multi-family and commercial real estate. But to be in the top 20, a market must have a consistently strong position in various real estate categories,” he said. Ian Formigal, Chief Investment Officer at CrowdStreet.