How To Invest In Real Estate: 5 Simple Ways

William Huston, AIF®, AIFA®

by in Published on June 27, 2022

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How To Invest In Real Estate: 5 Simple Ways

Real estate has been a popular investment option among many investors over the past 50+ years.

When you think about real estate, the first thought that might come to mind is your home. But did you know that there are more options for real estate investors in today's market? In fact, you don't have to own physical property to qualify as one. Want to know what other options are out there? Here are some great options that you should consider.

1. Rental Properties

Owning rental property is one way of investing in the real estate market. You can acquire a unit or several units, make the necessary renovations and then start taking in tenants. If you're a hands-on person, you can directly manage the project. If not, you can hire someone who can oversee the project.

It is important to note that significant capital is required for such renovations and for maintenance of the property. Also for regular maintenance and upkeep, you might need to hire a property manager, unless you're willing to be the sole manager of the property.

Here are some pros and cons to consider for this option.

Pros

  • Regular income generated from rent
  • If taken care of, the property will appreciate in value
  • There are some tax deductible expenses

Cons

  • Managing all of your tenants and their needs can get tedious
  • Potential damage of property from tenants
  • Reduced income from vacant months

2. Real Estate Investment Groups (REIGs)

Do you want to own rental real estate without the stress of running it? Then REIGs are a great investment option for you.

REIGs work in a similar way as mutual funds. A company will buy or build apartment blocks or condos and then allow investors to buy them through the company. It is important to note that to invest in a REIG, you need a capital cushion and access to financing.

As an investor, you can own one or multiple units. While you are the owner of the unit(s), the company that operates the investment group is the one that is in charge of handling maintenance, taking in new tenants and advertising for vacancies. As an exchange of these services, the company will take a percentage of monthly rent from all the unit owners.

A great advantage when it comes to REIGs is that even if your unit is empty/ unoccupied, you'll still receive some income. This is because usually part of the rent paid is usually kept aside in case of occasional vacancies.

Pros

  • As a unit owner, you're not directly involved in servicing your unit and dealing with tenants
  • Guaranteed income every month in the form of rent
  • Appreciation in property value

Cons

  • Individual investors face the risk unoccupied units
  • Fees charged for maintenance among other expenses
  • Susceptible to untrustworthy managers

3. House Flipping

House flipping refers to the process of buying a property, renovating it and then selling it at a profit.

Flipping houses is an advisable investment strategy for people with considerable experience in renovation, sales & marketing and real estate valuation. You can also hire a professional to guide you if this is somewhat unfamiliar territory for you.

The two approaches when it comes to flipping houses/ property are:

  1. Buying a property whose value you foresee rising, renovating it and then selling it at a profit.

  2. Buying a property in a market that's rising rapidly, holding it for a few months and then selling it at a profit.

Here are some pros and cons to consider if you'd like to get into house flipping.

Pros

  • House flipping can offer great returns in a short amount of time
  • Your capital is tied up only for a short amount of time

Cons

  • When the demand for property dips, you might be left stranded and in debt
  • This process requires substantial knowledge of the flipping process as well as the real estate market
  1. Real Estate Investment Trusts (REITs)

A REIT, Real Estate Investment Trust is a company or corporation that operates like mutual funds. They use money from multiple investors to buy and operate income generating real estate. Commercial real estate owned by REITS may include malls, apartment blocks, hotels and office buildings.

Just like normal stocks, REITs are bought and sold on the major exchanges. As a result, individual investors are able to earn dividends from real estate without having to buy or directly manage any property physically.

REITs are a popular type of investment as they tend to pay high dividends. This makes them a common investment in retirement. If you're an investor and you don't want to receive the regular dividends, you can choose to re-invest that income to grow your investments even further.

Pros

  • As an investor, you receive regular payment in the form of dividends
  • It's a hustle free kind of investment as you don't get to manage any properties directly

Cons

  • REITs can be varied and complex as some are traded on an exchange like stock while others aren't traded publicly
  • As with traditional rental real estate, you can't use any oth the properties owned by a REIT as leverage

5. Online Real Estate Platforms

If you'd like to get into online real estate investing then this is an option that you should consider. Online real estate platforms connect real estate developers to investors who are interested in financing projects through debt or equity.

Investors who put in their money usually expect to receive payment monthly or quarterly in exchange for taking the risk and investing their money in these platforms. Like many real estate investments, these are speculative and illiquid. That means that you can’t easily unload them the way you can trade a stock.

For some of these platforms, you may need to be an accredited investor as defined by the Securities and Exchange Commission. However, some platforms like Fundrise and RealtyMogul cater to those who don't qualify as accredited investors.

Pros

  • You can choose to invest in a single or multiple projects
  • You are able to invest in any geographic location that you desire

Cons

  • You are subject to payment of management fees
  • This type of investment tends to be speculative and illiquid

Conclusion

Real estate investing can be profitable if done the right way. It is also a great way to diversify your investment portfolio.

Be sure to do your own research and consult a financial expert in case you’d like to get into real estate investing.

Finally, here's a prime property that we’d highly recommend you check out.

Resthaven

Resthaven is a group of luxury vacation rentals that anyone can rent or even become a member by paying the traditional way or using NFTs.

With the first home being located in Venice, California, it is the perfect home for people looking to experience luxury travel, on company retreats, on their honeymoon or simply looking for a new adventure.

This home sits on 3,400 sq. ft., has 4 beds and 4.5 baths. Its close proximity to popular tourist attractions such as Muscle Beach, Ocean Front Walk and the Venice Fishing Pier makes it the perfect home for those looking to explore the city.

For more information on the property, contact us today!

Bay Street Capital Holdings

Bay Street Capital Holdings is an independent investment advisory, wealth management, and financial planning firm headquartered in Palo Alto, CA. They manage portfolios with the goal of maintaining and increasing total assets and income with a high priority on managing total risk and volatility. Although many advisors may focus on maximizing returns, they place a higher priority on managing total risk and volatility.

Our founder, William Huston founded Bay Street after 13 years of supporting the United States' largest retirement plan ($650B) Thrift Savings Plan. He is recognized as Investopedia’s Top 100 Financial Advisors for 2021. In California, only two black-owned firms out of nineteen firms received this recognition. In Scottsdale Arizona, Ekenna Anya-Gafu CFP, AAMS is recognized among the Best Financial Advisors for his responsiveness, friendliness, helpfulness, and detail. Bay Street was founded to advocate for diverse and emerging fund managers and entrepreneurs. In 2021, Bay Street was selected as a finalist out of over 900 firms across the US in the category of Asset Manager for Corporate Social Responsibility (CSR).

Sources

https://www.investopedia.com/investing/simple-ways-invest-real-estate/ https://www.investopedia.com/mortgage/real-estate-investing-guide/ https://www.nerdwallet.com/article/investing/5-ways-to-invest-in-real-estate https://www.forbes.com/advisor/investing/how-to-invest-in-real-estate/ https://africa.businessinsider.com/personal-finance/how-to-invest-in-real-estate-6-ways-that-offer-a-chance-to-make-money-and-build-long/yxeefed

William Huston, AIF®, AIFA®
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