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5 of the Best Ways to Invest in Real Estate
- Home ownership
- Rental properties
- House flipping
- Real Estate investment Trusts (REITs)
- Online real estate platforms
- Home ownership
If you own a home, you are already investing in real estate. Home ownership can be a great real estate investment if you buy your house at a good price and plan on long-term ownership. If you purchase your home for a relatively low price, then your home value will have more room to grow. This growth will result in a better long- term return on your investment when you decide to sell your home. Your down payment and mortgage payment also give you equity, which you can access at any time if you need money for a business venture or an emergency. Homeownership also comes with tax benefits, including deductions for mortgage interest and property taxes. Buying a home is not always recommended over renting since history has shown us that homes are not guaranteed to be a good investment if they are overpriced. There can also be a lot of other costs associated with owning a home, like pricey maintenance and repair fees for roof replacements, HVAC system replacements, and waterproofing. While homeownership might not be the best investment for everyone, it is one of the most common ways to invest in real estate, and is worth considering if the price is right, you have enough cash for at least a 20 percent down payment, and you plan on being a long-term owner.
- Rental properties
One of the most common ways to invest in real estate outside of homeownership is to rent out property. Rental properties can be land, single family homes, or multi-unit buildings. The rental property can also be your primary residence or it can be a separate property. No matter what type of property you are renting out, there’s probably an app specifically designed to connect you with customers who are looking to rent. Another benefit of investing in rental properties is the ability to reduce taxable income by subtracting property taxes, depreciation, and interest payments from revenue. We recommend using Airbnb to rent out land, rooms, and entire properties. We also recommend checking out Neighbor to rent out storage space, including garages, basements, and lots.
- House flipping
Another very effective way to invest in real estate is to flip houses. An average profit of more than $60,000 and return on investment (ROI) of more than 25 percent in 2022 show that house flipping can be quite lucrative. The way to be successful with this strategy is to find undervalued properties, in areas with growing demand, that would significantly increase in value after completing relatively inexpensive repairs and cosmetic updates. While this may seem like a very straightforward process, it can be difficult to estimate the cost and time required to complete repairs, which is why we consider house flipping to be one of the riskier investment strategies on this list. House flipping can be a very profitable way to invest in real estate. Just be sure to do your research and be prepared for a loss if one of your investment properties doesn’t work out as expected.
- Real estate investment trusts (REITs)
Real estate investment trusts (REITs) are a great way to invest in real estate without having to deal with any of the challenges associated with fixing up or managing a physical property. A REIT is a company that owns, operates, or finances income generating real estate. REITs often specialize in a single property sector, but can also be diversified with different property types, including hotels, apartments, hospitals, offices, and warehouses. Most REITs are publicly traded and can be bought and sold just like stocks. There are 3 different types of REITs you can invest in, which are equity, mortgage, and hybrid REITs. Equity REITs earn money from rent using owned properties, mortgage REITs earn money from loan interest by financing real estate ownership, hybrid REITs use both equity and mortgage REIT methods. REITs are an easy way to invest in real estate and diversify your portfolio that doesn’t require a lot of capital. REITs could be one of your top performing investments, with potential for high paying dividends and value growth, depending on real estate market conditions and individual REIT performance.
- Online real estate investing platforms
Online real estate investing platforms provide opportunities to invest in real estate development projects, often through crowdfunding. Crowdfunding is when a large number of investors make small investments to fund a project. Similar to REITs, this real estate investment method doesn’t require a lot of capital or physical property management. To make money with this investment strategy, the return generated once the project is complete, which is typically a monthly or quarterly payment, needs to overcome your investment and any platform fees. There is a risk that you could lose money, up to all of your investment and platform fees, if the expected return isn’t realized, so it is important to choose carefully when selecting a real estate development project. Another unique aspect of real estate investing platforms is that many of these platforms only allow accredited investors to invest, which includes people earning over $200,000 per year an individual, $300,000 per year with a spouse, or with a net worth greater than $1 million. Even though some platforms only accept accredited investors, there are several platforms that do not have this requirement. If you are interested in getting started with a real estate investment platform as a non accredited investor, we recommend using Fundrise, which has account minimums ranging from $10 for a starter portfolio to $100,000 for a premium account.