What Is The Best Way To Invest In Real Estate

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Consider Flipping Investment Properties

BEST WAY TO INVEST IN REAL ESTATE

This is HGTV come to life: You invest in an underpriced home in need of a little love, renovate it as inexpensively as possible and then resell it for a profit. Called house flipping, the strategy is a wee bit harder than it looks on TV.

There is a bigger element of risk, because so much of the math behind flipping requires a very accurate estimate of how much repairs are going to cost, which is not an easy thing to do, says Meyer.

His suggestion: Find an experienced partner. Maybe you have capital or time to contribute, but you find a contractor who is good at estimating expenses or managing the project, he says.

The other risk of flipping is that the longer you hold the property, the less money you make because youre paying a mortgage without bringing in any income. You can lower that risk by living in the house as you fix it up. This works as long as most of the updates are cosmetic and you dont mind a little dust.

» Which is better?Real estate vs. stocks

How To Make Money Investing In Real Estate

You can make money from real estate properties two different ways: appreciated value of the property over time and cash flow from rental income. We’ll break all that down in a minute.

But before we jump in, lets make something crystal clear: You should pay for investment properties with 100% cash. Dont even think about getting into debt for a rental property! A 100% down payment takes debt out of the equation, lowers your risk, and sets you up to make more money a lot sooner.

Brrr Investing Method: Buy Rehab Rent Refinance Repeat

Buy, Rehab, Rent, Refinance, Repeat is a popular long-term property investment strategy. Initially, the strategy entails performing the steps that constitute the acronym BRRR: buying a property at below market value, rehabbing it, finding tenants, refinancing, and then using the funds saved from renting and a potential cash-out refinance to repeat the process.

Eventually, however, BRRR allows you to repeat the process using economies of scale, which means that the projectâs cost is more manageable because the amount of capital invested into the project allows you to negotiate better deals on labor and materials.

As a result, the greater the scope of your investment portfolio, the more resources you have to invest in it, letting you purchase more lucrative properties and enjoy larger returns. Using BRRR, a successful real estate investor can truly build a real estate empire!

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What Type Of Real Estate Investment Is Best For You

There are a lot of different types of real estate investment, but the best one for you will come down to how you react to their pros and cons. Here is a quick summary for each type to help you better see which one strikes you as more secure and worth the risk.

Commercial Real Estate

  • You will receive a high rate of return.
  • Commercial Real Estate is vast as you can invest in multiple different types of businesses.

Cons

  • As businesses are involved, there is a lot of complex law involved, meaning you should have a person experienced in real estate investments and the business category to help you.
  • There will be a lot of costs involved to keep inside the legal parameters.

Flipping A House

Pros

  • You will receive a high rate of return.
  • As you plan on selling the home after refurbing it, this isnt a long-term investment.

Cons

  • Only suitable for specific locations or times of the year.

When To Hire A Property Manager

Invest In Real Estate: Best Ways To Invest Smartly

Rental property owners can manage the property themselves or hire a property manager. It can be a hard decision to make because property managers typically charge between 8% and 12% of collected rents, which can really eat into profits.

Still, hiring an experienced property manager can be well worth the cost. After all, it means less work and fewer headaches for you, as you take advantage of their industry expertise. In general, a property manager will:

  • Know how to market the property
  • Understand the local rental market and ensure you price the rental accordingly
  • Show the property to potential tenants
  • Screen tenants
  • Collect rent on your behalf and deposit the money into your bank account
  • Handle late rents and navigate the eviction process
  • Handle tenant complaints
  • Arrange maintenance and repair work
  • Pay property-related bills, such as property taxes, utilities, and insurance

To decide if hiring a property manager makes financial sense for you, ask yourself these questions:

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Real Estate Vs Mutual Funds

Mutual funds are a long-term investment. Generally, if you hold onto your mutual fund investments long enough, theyll increase in value, though appreciation is not guaranteed. Like with stocks, its easier to invest in mutual funds than in real estate. Real estate investments, though, can provide a hedge against the economic downturns that can cause mutual fund investments to fall in value.

A Combination Of These Strategies Could Be Ideal

Theres no rule that says you need to pick just one of these. In fact, the best way to invest in real estate for most people can be a combination of a few options. For example, I own a few rental properties, invest in several REITs, and plan to buy a vacation rental within the next year or so. Longer-term, Im planning to add a crowdfunded investment or two after I form a nice “base” out of investment properties with steady cash flow and rock-solid REITs.

Theres no perfect real estate investment — by diversifying your capital amongst a few of these, you can get the best aspects of each one. My REITs give me lots of liquidity if I need it and my rental properties give me excellent long-term return potential while providing a nice income stream. The best course of action is to figure out whats most important to you and decide the best way to invest accordingly.

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Simple Ways To Invest In Real Estate

Getting as well as possessing realty is an investment method that can be both satisfying and also rewarding. Unlike stock and also bond capitalists, potential property owners can use take advantage of to purchase a residential property by paying a part of the complete price upfront, then paying off the equilibrium, plus rate of interest, gradually. Real Estate Services Tampa can help you to solve all your real estate problems.

Though a conventional home mortgage normally calls for a 20% to 25% deposit, in some cases, a 5% down payment is all it takes to buy a whole residential property. This ability to regulate the asset the minute papers are authorized emboldens both property flippers and also proprietors, who can, in turn, obtain bank loans on their homes in order to make down payments on additional residential properties. Below are ten essential ways investors can generate income on property.

1. Research the market. When it comes to investing in real estate, knowledge is power. Do your homework and learn as much as you can about the market before making any decisions.

2. Work with a professional. Real estate investing can be complex, so its important to work with a qualified professional who can help you navigate the process.

3. Know your goals. What are you hoping to achieve by investing in real estate? Are you looking to generate income, build equity, or both? Knowing your goals will help you make better investment choices.

Forming Partnerships To Invest In Real Estate With Little Money

What Is The Best Way To Invest In Real Estate?

Real estate partnerships are common for investing in real estate with little or no money. If you want to invest in a property, but the price tag is out of range, then an equity partnership may be what you need. An equity partner is an individual whom you bring into a transaction, to help finance a property. There are different ways that partnerships may be structured, and thus it is up to the buyer and the partner to agree on a more viable structure.

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Cons Of Real Estate Investing

  • Potential returns aren’t as high as the stock market: From 1991 to 2019, the S& P 500 gained over 600% housing prices increased by only about 160%.
  • Real estate investment can be cash heavy: If you really want to get a steady income stream going, then you need enough cash on hand. Whether it’s your own money or it’s loaned to you, you’ll need to be able to pay for building improvements, maintenance, and more.
  • Properties are not liquid investments: You can’t turn a property into cash quickly like you can when you sell a stock.
  • Managing tenants and building maintenance can be a challenge: Whether you hire a property manager or manage it yourself, running a property can be full of unexpected problems. These can include overdue rent, roof leaks, power outages, and more.

Rent Out Part Of Your Home

As mentioned earlier, there is a horde of ways to invest in the lucrative real estate market. Also, platforms like Airbnb make it much easier now to rent out part of your home or the whole home if you wont be around for a while. If you are thinking about going on a vacation or out of town for a few weeks, you could use your home as a short-term rental to offset your holiday expenditure or travel expenses.

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Final Thoughts On How To Invest In Real Estate Invest

Ive just shown you at least 10 different ways you can invest in real estate. You can choose to invest hands-on, through rental real estate or fix-and-flip. If you dont want the headaches of owning real estate, you can invest through REITs, mutual funds and ETFs, LPs or P2P crowdfunding platforms. Or if you have the stomach for high adventure, you could try your hand at real estate notes or tax lien certificates.

Choose one or two real estate is an excellent diversification in a long-term investment portfolio or retirement plan. There so many ways to do it, its just a matter of choosing the one you feel most comfortable with.

Rent Out All Or Part Of Your Own Home

Why Invest in Real Estate?

This isnt as much of an investment strategy as it is a side hustle, but its still worth mentioning here. With the emergence of platforms like Airbnb, its easier than ever to rent out your home when you arent around or to rent out a spare room in your home for a few days here and there.

One interesting aspect of this strategy is that if you rent out your home for fewer than 14 days in a year, you dont pay tax on the money you collect. If you go out of town for the holidays or take a summer vacation, using your home as an occasional short-term rental can offset your travel expenses with tax-free income.

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Six Ways To Get Started With Real Estate Investing

There are a variety of ways to invest in real estate. Some are far more handson than others. And each one will involve a different level of financial and time commitment.

Ways to start investing in real estate:

  • Multifamily homes
  • Buy, Rehab, Rent, Refinance, Repeat
  • Real estate investment trusts
  • With these six, well be looking in greater depth at residential properties. If you wish to invest in commercial property this information wont be relevant to you.

    Should I Find A Real Estate Investing Partner

    If you would like to invest in a rental property but don’t have the money to make it happen, you might want to consider a real estate partnership. In simple terms, an investing partner helps finance the deal in exchange for a share of the profits.

    Keep in mind that a partnership isn’t an “easy button,” and it doesn’t get you out of any work. You still have to do your homework, practice your pitch, and be ready to show prospective partners that the investment makes financial sense.

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    Types Of Real Estate Investments

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    The investing information provided on this page is for educational purposes only. NerdWallet does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks or securities.

    There are several types of real estate investments, but most fall into two categories: Physical real estate investments like land, residential and commercial properties, and other modes of investing that dont require owning physical property, such as REITs and crowdfunding platforms.

    Investing in traditional, physical real estate can offer a high return, but it also requires more money upfront and it can have high ongoing costs. REITs and crowdfunding platforms have a lower financial barrier to entry, meaning you can invest in multiple types of real estate for far less than it would cost to invest in even one traditional property. These alternative real estate investments also offer the distinct advantage of not having to leave your house or put on pants to start investing.

    If youre looking to invest in real estate, here are five types to consider:

    ‘the Right Investment Will Continue To Appreciate’

    Whats the BEST Way to Invest in Real Estate â How to Invest in Rental Properties for Beginners

    “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!”

    Grant Cardone, sales expert, New York Times best-selling author. Follow him on , and

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    Fix And Flip Real Estate

    As you can see, the list of the best real estate investment strategies for beginners goes on. The next one is fix and flip real estate.

    What Is Fix and Flip Real Estate?

    Flipping houses requires buying a real estate property in a poor condition, fixing it up to a good state, and selling it to another real property investor or homebuyer. Fix and flip is one of the best real estate investments for those beginners looking for quick cash.

    Pros of Fix and Flip

    • You can make a significant amount of money very quickly. A fix and flip deal can be completed within a couple of months, and you can end up with thousands of dollars in profit. Not bad for a beginner investor, right?
    • House flipping gives you access to additional sources of financing. Along with loans for fix and flip investors, both private money loans and hard money loans become more accessible and affordable as you repay quickly which lowers the interest rate and the total repayment amount.
    • Fix and flip is good for first-time real estate investors as it allows them to get a taste of most aspects of the real estate business such as buying an investment property, implementing fixes and repairs, and selling a house. In this way, they can decide if this is the right niche for them without a long-term commitment.
    • There is no need to deal with tenants and their endless demands with fix and flip real estate.
    • Flipping houses is ideal for real estate investors with a dynamic personality and resourceful nature.

    Create Video Testimonials For Social Proof

    95% of people say that reviews whether positive or negative influence their purchasing decisions.

    Video testimonials will increase your credibility. Its the best way to leverage social proof to win more business. Thats because when a random customer talks about your business, you get more points with a prospect than by promoting it yourself. In fact, 2 out of 3 people say theyd be more likely to make a purchase after watching a testimonial video demonstrating how a business, product or service had helped someone else.

    Yet, you need to be more strategic with how you use video testimonials. You can add these testimonials to your website homepage to give it personality and make people more interested in your brand. But, if you really want to get new leads, you need to be sharing your video testimonials on social media.

    Heres a step by step process to do that:

    1. Have a system for getting testimonials from past customers. Dont wait a month to ask, since a new client whos happily moving into a new home is far more willing to give you a testimonial than one of your long-time clients.

    2. You could offer to give a nice closing gift to clients who create a video testimonial about your brand to incentivize them. You can also just have your team interview clients about their home buying or selling experience.

    Heres a good example shared on Youtube by Greg Guinto of Sothebys International Realty:

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    Sometimes It Takes Guts

    Another common saying is that real estate takes deep pockets, which generally holds true. Youll have property taxes to pay, times where a rental property may be vacant while you still have a mortgage to pay, and the cost of repairs and maintenance that need to be done.

    Leverage can be an effective strategy for building a real estate portfolio if done with care. With rental real estate as with anything else, when you use leverage you are buying an asset with someone elses money. This is great, but it does come with risk too much leverage can be dangerous.

    In the period from 2009 to 2011, many people watched their real estate portfolios suffer because they had used too much leverage, and many lost all of their properties. A typical scenario played out for many as the economy slowed, where a few renters moved out, other income sources went down, and real estate investors didnt have the cash flow to keep paying the mortgages on their vacant investment properties while waiting out the economy. They didn’t have the deep pockets that were needed.

    Buying a property to flip takes guts too. The property might not sell as quickly as you thought it would, and you must have enough cash to cover the mortgage until the property sells. You’ll be faced with a decision to either hang on to it and wait or sell it a lower price. Guts have to be combined with knowledge, skill, and intuition to be effective.

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