Real estate can be a highly attractive investment option, as it offers diversification from other asset classes, tangible asset holdings and multiple potential sources of returns. Investors who own property may see positive returns through appreciation, cash flow, loan payments, and tax benefits.
Today, there are many different methods by which people and groups invest in real estate. If you’re new to this type of investment, the following are some of the most effective ways to get started in real estate investing.
Purchase Small Rental Properties
One of the most common ways to get into true real estate investing is to purchase small rental properties. These may be single-family homes or smaller, multi-unit properties, with two to four units. Anything larger is usually beyond most individual burgeoning investors’ budgets.
Small rental properties are a viable solution if you know how to evaluate potential properties, and have the time needed to take care of both the properties and residents. Many investors find they can only grow a portfolio so large through this type of investing, though.
Fix-Up and Flip Houses
If you have the knowledge, skills, and time required to rehabilitate dilapidated homes, flipping houses can be a viable path. To be successful, you need to find houses that can be sold for more than it costs to purchase and repair them.
Flipping houses isn’t for everyone or even many investors, and resource constraints often keep investors who do this from growing their portfolio too large. This method also results in highly varied returns and can come with major tax implications, as expenses and profits tend to roll in all at once. However, if you’re a contractor or familiar with home construction expertise, this may be a good option for you.
Invest in Managed Real Estate
Managed real estate may come in the form of a real estate investment trust (REIT) or through a connection with a real estate investment manager. Some of these opportunities are publicly traded, but many are only privately available to qualified investors who are invited to join. However it’s set up, managed real estate investing offers several benefits that make this especially attractive to the novice real estate investor.
First, investing in either a REIT or other managed real estate group lets new investors benefit from the knowledge and expertise of more seasoned investors. Even for people who’ve invested in other types of assets but are just getting into real estate, having help from people who are experienced in real estate investing is usually extremely helpful.
Second, managed real estate groups often give investors opportunities that they otherwise wouldn’t have on their own. This is true for both new and experienced real estate investors, as pooling resources together helps people find more potential deals through increased networks and purchase larger properties thanks to greater financial resources.
Third, the people who invest through managed groups can be as involved or uninvolved in the regular operations of they group as they want to. There are both general partners that oversee the day-to-day tasks of managing a portfolio (and sometimes individual properties) and passive partners who generally provide financial resources to the group.
Regardless of whether a new investor has knowledge about properties or substantial financial resources, this dual arrangement is good for the new investor. It lets people who know properties get involved by providing sweat equity rather than money, and those with money can get involved even if they know little about properties themselves.
Get Started in Real Estate
If you’re looking to invest in properties, all of these methods are effective ways to get in real estate investing and may suit you. Carefully consider your situation and which option seems best for you, and begin pursuing it. Whether you decide to rent out a room, purchase a small rental property, flip a house, or join a REIT or managed real estate investment group, there’s a real estate investment option for almost everyone.