Any Real Estate That Costs More Money Than It Makes Is The Worst Type But How Would You Know What Type That Might Be
Zillow Group , the online real estate marketplace, recently announced that it’s shutting down its homebuying section, Zillow Offers. Why? Because having a business based solely on the assumption that houses will appreciate in the short term is a risky business, one that’s proved to be a losing proposition. Not to mention that the costs of fixing up houses has risen amid inflation, supply chain problems, and a labor shortage.
It was difficult for Zillow, even with its fancy Zestimate algorithm, to accurately predict housing prices. And indeed, this mega-real estate tech player is going to take a bath on much of its inventory of 7,000 homes by selling them, not to the public as planned, but to institutional investors. On top of being a financial setback, it shows the enormous challenge of buying homes with the goal of flipping them.
Best Ways To Invest In Real Estate: How To Get Started
The more you learn about real estate, the more you realize there are more ways to invest in real estate than just buying a house or two in the neighborhood and turning them into rental properties. Indeed, there are many alternative real estate investments out there.
You might wonder why there are so many options or which one is best. The reality is that there is not one single answer. Each type of investment has its own risk/reward profile.
That being said, all of these are mostly hands-off investments. That means they wont require much ongoing work.
Whether youre new real estate investor or youve been investing in real estate for a while, you can always find new opportunities.
So if flipping houses isnt your jam, one of the alternative investments may work better for you.
What Is An Reit
A real estate investment trust is a company that owns, operates, or finances income-generating real estate. Individuals can invest in an REIT and potentially receive dividends from their investment. Equity REITs own the underlying real estate, while mortgage REITs don’t own the underlying real estate. Instead, they own debt securities, which are riskier. Hybrid REITs combine equity and mortgage REITs.
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The New Era Of Real Estate Investing
Real estate is one of the greatest wealth-building assets of all time, providing stable returns through all market cycles. However, investing in real estate through traditional means is becoming increasingly difficult.
The housing shortage has made it more difficult to find investment opportunities and surging home prices along with recent interest rate hikes have further limited the access to real estate investments.
While this may seem like a death blow to many investors’ dreams of becoming real estate moguls, a growing number of retail investors are becoming landlords through a more affordable and efficient strategy: fractional real estate.
The real estate investment platform Arrived Homes, backed by Amazon.com Inc founder Jeff Bezos, is one of the fastest-growing providers of fractional real estate investments. The company offers securitized shares of income-producing single-family rentals through SEC-regulated offerings.
The company caught the attention of many high-profile investors during its seed round, attracting investments from Jeff Bezos through his Bezos Expeditions fund, Salesforce.com Inc founder through Time Ventures, former Zillow Group Inc CEO Spencer Rascoff and Uber Technologies Inc CEO Dara Khosrowshahi.
Popular today in alternative investments:
The Jeff Bezos-Backed Real Estate Company Is On A Buying Spree For Single-Family Homes
Have $100 to invest? Here are three ways you can start investing in real estate today
Types Of Real Estate Investments For Aspiring Investors
Summer Rylander is a freelance writer and editor with an abundant background in real estate. A former residential real estate agent in the Columbia, SC area and sales administrator at a commercial real estate firm, she now uses this experience to help guide readers. Summer currently resides in Nuremberg, Germany, where she fulfills her passions of food and travel and avoids her dislikes of mayonnaise and being trapped in an office.
At HomeLight, our vision is a world where every real estate transaction is simple, certain, and satisfying. Therefore, we promote strict editorial integrity in each of our posts.
Though not entirely without risk, real estate is widely regarded as one of the best long-term investments you can make. After all, you have to live somewhere, and owning a home means putting money back into your own pocket instead of a landlords with each monthly mortgage payment.
While homeownership is a common starting point for many hopeful investors, there are myriad types of real estate investments worth having on your residential radar. In this article, with the help of Jordan Terrell, a top agent and real estate investment expert based in Westminster, Colorado, well take you through 11 investment options with a brief introduction as to which require the most time, effort, and money to pursue.
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Rent A Portion Of Your Existing Home
If you arent sold on the thought of purchasing a home only to recoup your money little by little, you could first test the waters by renting a portion of your house. You have a couple of options to do this.
First you could rent a spare room in your home or you could rent the basement. If youre yet to purchase your first home and like this idea you could even buy a duplex and live in one apartment and rent the next.
The advantages to renting a portion of your house is that you get to watch your tenant closely. Its less likely that a tenant will try to stiff you for the rent payment when youre in the same household. Renting a portion of your house also gives you the ability to get a feel for what its like to be a landlord without making such a huge monetary investment.
Our friend Michelle recently wrote about renting a room to a stranger, which is a great read if youre considering this option.
Should You Invest In Real Estate
On balance, yes. Having some real estate in your portfolio is a wise investment decision and because there are so many ways, many of them easy and inexpensive, there is something for everyone.
But dont get too excited, remember the rule of thumb: 5% of your portfolio should be real estate. You can bump that up by four or even five times when things are uncertain.
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Best Cities For Foreign Investment In United States Real Estate
According to an old survey of the Association of Foreign Investors in Real Estate , the United States was deemed the number one country for planned real estate investment and the 5 best cities for foreign investment in United States real estate are:
With 58% of respondents votes, the US remains the country considered the most stable for real estate investment, and 86% said they plan to maintain or increase their investment in US real estate.
What Are Investments Protect Against Inflation
There are multiple strategies to preserve your capital over the long run.Treasury Inflation-Protected Securities. Treasury inflation-protected securities, or TIPS, are investments that account for inflation. Commodities. Commodities are another suitable hedge against inflation. Real Estate. There are many advantages to investing in real estate. The Takeaway.
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How Does Real Estate Investing Make Money
Investing in real estate is a tried and true method of making money, and you can make that money in various ways. The two main methods are value appreciation and rental income:
Value Appreciation: Throughout history, property values have increased over time. We call this increase in value appreciation. Any expert would agree that location is the number one thing to base your investment upon. Property values go up along with the perceived desirability of a neighborhood. Have you ever heard the phrase, buy the worst-looking house in the best neighborhood? There is some truth to this. Its better to buy a house you can fix up in a great neighborhood than an okay house in a bad neighborhood. You can also look into investing in an up-and-coming area.
Rental Income: Some real estate investors will rely solely on value appreciation. For example, perhaps they live in the property or invested in a vacation home. However, many real estate investors like to grow their wealth by generating rental income.
In an ideal situation, your renters would be paying for your mortgage and some profit to boot. However, be sure to factor repairs and maintenance into your budget.
Real Estate Bought For The Appreciation
So where does that leave us mere mortals who are in the same fix-and-flip game as Zillow was during these unprecedented times of low supply and high prices? Some real estate investors are still making money flipping houses, but in the future, “investors may need to reframe how they look at these deals,” Todd Teta, chief product and technology officer of real estate analytics firm ATTOM, told CNBC.
The trick to being successful flipping houses these days is to pick a good location. According to CNBC, the worst areas as of the second quarter of 2021 to flip houses are the following:
- Gulfport, Mississippi: -8% profit
- Corpus Christi, Texas: 0.7% profit
- College Station, Texas: 1% profit
- Longview, Texas: 7% profit
- Daphne-Fairhope, Alabama: 8.5% profit
Compare those areas with the best flipping returns on investment, and you’ll see how important it is to choose a good location:
- Oklahoma City: 196% profit
- Fargo, North Dakota: 185% profit
- Pittsburgh: 154% profit
Image source: Getty Images.
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What Are The Different Ways Inflation Affects Investment
9 Common Effects of Inflation Erodes Purchasing Power. This first effect of inflation is really just a different way of stating what it is. Encourages Spending, Investing. A predictable response to declining purchasing power is to buy now, rather than later. Causes More Inflation. Raises the Cost of Borrowing. Lowers the Cost of Borrowing. Reduces Unemployment. Increases Growth. More items
Research The Property Carefully
If you are purchasing land that you plan to sell at a later date, you need to research the land deed thoroughly. Find out whether any new roads are planned close to the land you purchase and consider how that will affect the property value. Also be sure there isnt a lien on the property. You may also want to consider things like the comparables in the neighborhood, including whether the area is up-and-coming, and other external factors that could affect the property value.
Once you have done your research, you should be able to make the correct decision about purchasing it as an investment. Investing is always a risk, so keep that in mind. You may make money on your investment, but you could lose money as well. Things may change, and an area that you thought might increase in value might not actually go up, and vice versa.
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Invest In A Bigger Real Estate Deal
One of our favorite options for investing in real estate is joining with others to invest in a bigger deal. This can be either commercial or residential.
There are two great things about investing in a larger real estate deal online:
As such, if youre looking to diversify your investments, but dont have a lot of money to do it with, this could be a lucrative way to start.
We recommend three platforms for investing in real estate:
If youre curious about more options, we compared all of the major real estate investing sites here.
Real Estate With Negative Cash Flow
Another common way to make money owning real estate is by holding the investment and renting it out. The land mine here would be not understanding the market. The wrong way to go about buying rental property is to buy as you would for your primary residence, namely choosing something you like. There’s nothing wrong with liking your investment property, but that should just be icing on the cake. The right way to buy rental property is to study the market, determine what area rents are going for, and then buy accordingly.
In addition, during today’s market, it’s a good idea to buy rental property that’s as move-in ready as possible, given the high cost of renovation materials and the shortage of labor.
A shorthand method to determine whether a property would be worth buying is if you can get 1% of the home’s price in rent. If you buy a $500,000 property, for example, what are the chances you could get $5,000 a month in rent? That’s out of reach for many renters.
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Gary Beasley is the CEO and Co-Founder of Roofstock. A little over 2 years ago, he wrote an article for Forbes titled Secondary Cities Make Up The 10 Trending Single-Family Rental Markets For Investors In 2019.
If You Really Want To Invest In Real Estate You Probably Dont Want To Live There Yourself
That back-of-the-napkin math for determining what can work for a rental also doesnt account for the scenario we see a lot of people talk about when they say they want to invest in real estate: What they actually want is to buy a vacation property, use it themselves for a portion of the year, then rent it out when they are not personally using it.
What they dont consider is the fact that a home they personally want to live in or use is likely going to be much more upmarket than a home an actual real estate investor will consider for purchase. The higher the price of the home, the harder it is to actually realize a positive return.
And while vacation rentals can do brisk business, if you want to use the house for yourself during peak seasons, youre going to have a hard time renting out the home for a prime price, filling vacancies during off-seasons, or both.
Remember, seeing rental payments come in does not equate to automatic profit. To determine if youre truly earning a return on a property that is equivalent to or higher than what you could expect through a diversified portfolio invested in an array of mutual funds and ETFs, youd have to calculate your total internal rate of return which requires you take into account all costs of homeownership, not just the top-line numbers on your mortgage statement.
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How To Invest In Real Estate: 8 Strategies For Beginners
If you dont already know how to invest in real estate, breaking into the industry can be intimidating. It can take several years before an investor feels comfortable and confident in real estate. Thats why beginner-friendly investing strategies are a great place to start. While they are suitable for investors with little to no experience, they can still be highly profitable when managed correctly.
Starting in a beginner-friendly investing niche is a great way to learn the ropes before taking on more complex investments. By starting with an accessible strategy, investors can get to know their local market, build a network, and learn how to raise capital without committing to a deal they may not be able to handle. Investors can then use their experience and profits to transition into other strategies down the line.
Here are some real estate investment strategies for beginners to use as a starting point:
Wholesaling: This strategy allows investors to act as a middle man between sellers and buyers. Wholesalers will identify and secure a property under market value, and then assign that contract to an end buyer.
Prehabbing: Prehabbing is the process of positioning a property for resale by adding minor cosmetic updates. The property is then often sold to an investor who will complete a full rehab.
‘the Right Investment Will Continue To Appreciate’
“Real estate is real, and it’s always a good idea to put your money in real assets. But let me be clear: That doesn’t mean that all real estate is a good idea.
I only buy certain types of properties, generally multifamily ones in upscale locations that provide consistent cash flow and great potential for future appreciation.
I stay away from low-income areas and single-family homes. But even those assets are probably a better place to store your money than letting cash depreciate while sitting in the bank!”
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