Maybe you’ve decided 2021 is the year you start working toward your financial goals and building wealth. Investing in real estate is decidedly one of the best ways to build wealth, but getting started is intimidating. Too often, people count themselves out of investing in real estate because they don’t think they have enough money to get started. The following are key things to know even if you don’t have a big initial investment.
To invest in real estate, you don’t always have to buy property. There is something called a real estate investment trust or REIT. A REIT lets you invest in real estate, but you don’t have physical property. They’re a bit like mutual funds, except with commercial real estate.
For example, the company that makes up the REIT will own retail spaces or apartments.
You might earn dividends, and they’re often high with REITs. You can take your dividends as income or reinvest them.
Some REITs trade on an exchange, like stocks, and others aren’t publicly traded.
One of the most popular ways to invest in real estate is by purchasing rental properties. When you buy a property, you can then put it on the rental market and use your earnings to cover the mortgage and perhaps make a profit as well.
If you’re new to investing in rental properties, there’s a concept called house hacking, which became buzzy when it was introduced by the online site BiggerPockets.
What it means is that you live in your investment property and you rent out a room, or you have a multi-unit property and you rent out units in it. You can still get a residential loan with this strategy, but you might have a property with up to four units.
As part of this, even if you don’t plan on investing further in real estate, renting out a room or several rooms in your home is still a real estate investment on its own. You can rent out a room on Airbnb, for example.
Short-term rentals let you invest in real estate and earn cash flow. As was touched on, you might rent out part of your current home, or maybe you buy a vacation home and rent that out.
Join an Investment Group
If you don’t have a lot of capital right now but you want to invest in real estate, you can join an investment group. When you join a real estate investment group, you come together with other investors who have similar goals, to pool your resources.
Then, you get a portion of the income generated through investing.
There are a lot of different ways resources can be pooled by these groups.
Flipping Real Estate
Flipping a property can be one of the riskiest ways to start investing in real estate but in some cases one that will turn a profit fastest.
When you flip a property, you can either buy it for well below market value, usually because the current owner is facing financial distress, or you can buy a house and remodel it so you can turn around and sell it for a profit.
Flipping is a tough business, however, particularly if you’re new to it.
Finally, don’t forget that buying your first home is an investment as well. When you buy a home, you have instant equity because of your down payment, and then you grow that over time. When you’re ready, the equity in your home can become an asset that you use to invest in other real estate.