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4 Ways to Invest in Real Estate

Irina Tsymbaliuk

Investing in real estate is one of the easier approaches to create passive income or diversify your investment portfolio. Putting your money into properties, from residential homes and commercial spaces to undeveloped land and rental assets is a sure way to achieve consistent profit generation.

Real estate tends to gain in value over time, which means your initial investment could tangibly grow in the future. Meanwhile, the tenement is a stable cash flow generator, especially in popular rent locations. 

However, even if you are determined to invest in real estate, don’t make a prompt start. First, you should understand all the risks inherent to this field. Real estate markets are sensitive to economic downturns and social shifts that might make property prices fluctuate. Thus, macrofinancial trends or local market shifts can decrease the value of your investment in the long run. 

If the idea of capitalizing on the property still speaks to you, and you wonder how to get into real estate investing, you’ve come to the right place. Below, we’ve reviewed the best ways to invest in real estate and grow your funds. 

1. Investment Trusts (REITs)

When you google “How do I invest in real estate?”, REITs will be among the top search results, and for a good reason. They will let you benefit from properties' income potential without the complexities of ownership and management.

REITs refer to companies that own, manage, or finance income-generating immovable assets across different sectors, including residential, commercial, and even industrial objects. They pool investors' money to purchase and manage properties, gaining revenue primarily through rentals or sales. What makes REITs so attractive is consistent income distributions that come in the form of dividends.

Pros:

  • Portfolio diversification with various assets to reduce risks;
  • REITs accessibility through stock exchanges.

Cons:

  • REITs price fluctuations based on market conditions;
  • Limited control over the assets since the company executives manage them. 

Examples:

  • Simon Property Group owns and manages shopping malls, premium outlets, and retail spaces across the globe;
  • Equity Residential operates rental apartment properties in various markets.

As such, REITs are among the best ways to invest in real estate for those who seek a steady income without putting too much effort.

2. Crowdfunding

When considering how to invest in real estate with crowdfunding, have a look at specialized platforms. They allow multiple investors to collectively invest in real estate projects, no matter their financial capabilities and available resources. By and large, such platforms simply connect investors with real estate developers or property owners who seek financial support for their business ideas. The assets in question could be residential buildings, commercial spaces, or even renovation projects with the goal of generating profit later on.

While traditional real estate investments might require hefty initial capital, crowdfunding allows for smaller contributions, creating opportunities for individuals who haven’t had such opportunities before.

Pros:

  • Lower entry barrier;
  • Diversification by spreading investments across different properties or projects;
  • Convenience, with transactions and management handled through online platforms;
  • Transparency for making informed decisions.

Cons:

  • Limited control over the project management and execution;
  • Liquidity challenges due to long-term commitments.

Examples:

  • Fundrise provides a whole range of options on how to start investing in real estate, known for its approachable minimums;
  • RealtyMogul is a functional platform for commercial property investments. 

Real estate crowdfunding is a promising option for those who seek to dip their toes into the topic without a massive upfront investment.

3. Rental Properties

To make money on rentals, you should own or purchase some property to then rent it out to tenants. It could be a house, an apartment, or a commercial asset. As a landlord, you will have to maintain it, handle the tenant's issues, and ensure that the space remains in due condition.

The payments collected from tenants are a steady income stream, providing a return on your investments. At the same time, rentals involve:

  • finding suitable tenants;
  • negotiating the rental price;
  • drafting lease agreements that outline the occupancy terms and responsibilities of both parties;
  • sticking to your landlord commitments.

Pros:

  • Predictable source of income, ensuring financial stability;
  • Property appreciation over time, allowing you to build equity;
  • Tax deductions related to property expenses and mortgage interest. 

Cons:

  • Ongoing property maintenance, repairs, and dealing with tenant-related issues;
  • Vacancy periods can impact income;
  • Market risks can affect property values. 

Examples:

  • Zillow Rental Manager assists landlords in managing their rental properties;
  • WeWork leases office spaces and sublet them to businesses.

Rental properties are among the best real estate investments for generating passive income and building long-term wealth. 

4. House Flipping

House flippers hunt for property that is undervalued, distressed, or need significant renovations, upgrading, or overhaul. Usually, they buy those assets at a lower price, invest in strategic improvements, and then sell them for a much higher price to pocket the difference.

Pros:

  • Renovations can boost the property value, yielding high profits;
  • Investors can truly unleash their creativity in home design and renovations;
  • Full control over the improvement process.

Cons:

  • Financial risks, especially if renovations end up costing more than anticipated;
  • Costs, such as mortgage payments and utilities during renovations, can eat into profits;
  • Market volatility and time constraints. 

House flipping can be an attractive and efficient strategy for those who have an eye for real estate opportunities and renovation potential. However, if you are new to investing in real estate and have little to no experience in analyzing market conditions and estimating the scope and cost of renovation, we recommend sticking to another option. 

Final Thought

Real estate investing offers exciting opportunities to make money without putting too much effort, generate income, diversify your investment portfolio, and grow your funds. 

Which is the best way to invest in real estate for you? It is the one that aligns with your financial objectives, matches your risk tolerance, and suits your available financial and time resources.

To confidently navigate this investment landscape and make a well-informed decision, it wouldn’t go amiss to consult with professionals or appropriate financial advisors. 

FAQ

What are the benefits of investing in real estate?

Real estate is a popular choice for investors since it has a whole range of benefits to offer to all types of investors, whatever their financial capabilities and resources:

  • Steady income;
  • Property value appreciation;
  • Investments diversification;
  • Tax advantages;
  • Hedge against inflation;
  • Overall portfolio growth.

What are the major risks of investing in real estate?

As promising and beneficial as they are, property contributions come with risks. The major risk factors you should take into account when considering the best ways to invest in real estate include:

  • Market fluctuations;
  • Liquidity challenges;
  • Maintenance expenses;
  • Financing risks;
  • Management difficulties.

How much money do I need to start investing in real estate?

The starting capital needed will largely depend on your investment goals and strategies, as well as on the type of investment and financing options. If you choose a mortgage to buy a rental property, the initial investment will be a down payment of around 20% of the purchase price. REITs and crowdfunding allow for lower initial amounts, starting at a few thousand dollars.