Are you curious about real estate investing? It can be satisfying to put your money into a real, tangible asset that gains value over time. Real estate can be a lucrative investment, and there’s more than one way to get into it.
If you’re not sure about buying a whole rental property but still want to get some exposure to real estate, you can buy shares in a REIT. You can dip your toes into the landlord waters by occupying the property yourself while you rent another portion of it out. You can use online crowdfunding platforms to pool your money with other investors. And, if you’re ready, you could take the plunge and buy a rental property, and either manage it yourself or hire a property management company.
Buy Shares in a REIT
If you’ve had overvalued markets and real estate market bubbles explained to you and you’re worried about the risks of buying rental property in an overpriced market, you can avoid many of the risks of investing in real estate by buying shares in a real estate investment trust (REIT) instead. A REIT is like a mutual fund that owns real estate, and you buy shares of it, effectively adding real estate to your portfolio without actually buying any property yourself. Shares in REITs are as easy to buy as shares in stocks, and they’re as easy to sell, too, so when you need cash, you won’t have to put them on the market and wait for months for the deal to close. You’ll just be able to sell them the same day.
Hack Your House
You can make the most of profits from your rental property if you can also cover your own housing expenses. House hacking is an investment strategy in which you buy a property and live in one part of it while renting other parts of it out. You could buy a house with several bedrooms and rent out the other bedrooms to paying lodgers. You could buy a multi-family unit and live in one of the units and rent the other units out. You may be able to make enough money to cover your mortgage, and because you’ll be living on the property, too, you’ll be able to qualify for government-backed loan programs available to those buying primary residences.
Pool Your Money
If you want to invest in commercial real estate, but don’t have a lot of money to put down, try a platform like FundRise that lets you pool your money with other investors. Some real estate crowdfunding platforms do require that investors be accredited with the Securities and Exchange Commission, but new options for everyday investors are making it easy to pool money with others to invest in apartment buildings, commercial spaces, and more.
Buy a Rental Property
Of course, sometimes there’s nothing like a rental property. It’s a tangible asset that gains value over time. If your rental property is in a desirable location, you can keep tenants in it every day of the year, so you can always be earning revenue. As you pay off the mortgage, you’ll be able to keep more of the rent you collect.
Buying a rental property is a little harder than buying a house as your primary residence. You need to have a credit score of at least 620 (but preferably 740 or higher), a down payment of at least 15 to 20 percent, two to five percent of the purchase price towards closing costs, six months of mortgage payments in savings, and a debt-to-income ratio (DTI) of no more than 45 percent.
You’ll need to know how to tell if a rental property is a good investment – if it’s in a good location, in good condition, and able to command at least one percent of its purchase price in monthly rent. Expenses like mortgage payments, repairs, updates, vacancies, turnover, and so forth will eat into your profits, typically taking up 30 to 60 percent of your revenue. You can typically expect a return on your investment of about six percent in your first year of owning a rental property, and you can aim for a return of 10 percent over time.
Are you ready to diversify your investment portfolio and grow your wealth over time? You need to get into real estate investing. Whether you want the liquidity and simplicity of a stock or you’re ready to roll up your sleeves and be someone’s landlord, you can choose the real estate investment that works for your lifestyle.