Investing in real estate can be an excellent alternative to investing in stocks. Unlike mutual funds and the stock market, real estate allows investors to be hands-on in growing their capital. Apart from that, real estate also allows investors to capitalize and grow their profit in a number of ways. If you are just starting out in the real estate business, here are some ways that you can invest and earn from it.
Invest in Rental Properties
This is an excellent starting point for investors who are new to investing in real estate. Rental properties can generate cash flow and allow investors to earn through value appreciation. There are two types of rental properties that venture capitalists can invest in. These are single-family homes and multi-family homes.
Single family homes are a great way to earn passive wealth due to the growing demand for housing and rental properties. The downside to these is that they only allow one unit to be rented at a time. Therefore, when the unit is vacant, there will be no other means to generate income. This is the reason why the events of foreclosures are high in single-family homes.
A good alternative is investing in multi-family properties. These complexes are more expensive than single-family houses, but they also offer more income-generating opportunities. Since there are more units that are rented out, a steady cash flow may still be gained despite having some vacant units.
Another good reason to choose to invest in multi-family homes is that they can be easier to procure than single-family units. People who invest in multi-family properties often get higher chances of being approved when trying to get loans from banks and other lending institutions. Those who have low funds or do not have the money can also buy these types of rental properties by getting financing assistance from the Federal Housing Association (FHA). An FHA loan is best for first-time homebuyers, people who do not have enough savings for huge down payments, and people who have low credit scores.
These types of investments allow investors to capitalize on real estate without directly investing in those properties. Real estate investment trusts or REITs are companies that own, operate, or finance commercial types of real estate, which include condominiums, retail spaces, apartments, office buildings, and hotels. REITS are varied and complex and careful assessment should be made before investing in one. REITs can only be purchased through online brokers, so having a brokerage account is useful.
Be Visible on Online Real Estate Platforms
Online real estate investing platforms allow investors to connect with borrowers who are willing to lend money to those who wish to purchase real estate properties or to those who need money for home renovations and other matters. These also connect investors to real estate developers who are willing to finance projects related to real estate. Financing may either be through debt or equity.
The term “flipping” refers to the process of purchasing an asset that has a short holding period. The intent is to sell the asset for quick profits instead of holding to it and waiting for it to appreciate. Basically, investors will buy the homes for a very low price and then resell it at a higher price. Often, the homes may need to be renovated before they can be sold. This investment strategy is a bit risky; investors will have to make accurate estimates on the cost of repairs and renovations to earn a profit. To prevent losses, partnering with experienced contractors who can make assessments and who are good at creating estimates is an excellent strategy.
Another risk associated with house flipping is that investors may not earn as much when they hold the property for a longer period. This is because they are essentially paying for the mortgage and not earning income during those times that they hold on to the property.
Have a Room Rented
For those who are not yet ready to procure real estate properties for investments, they can still invest in real estate by having spare rooms in their houses rented. This is the concept used by Airbnb. Essentially, the renters are not long-term tenants and may be using the room only while they are visiting a particular place for leisurely purposes.
The best investments in real estate are those that serve their purpose of generating a steady passive income. Sometimes, cash flow may be slow, but what is important is that these investments are earning passive income and are appreciating.