Real estate investing: ways to get started
The American Dream used to include real estate investing. You may be asking yourself should I buy a house?
Real estate investing can be a great way to make a lot of money if you do your research and are prepared to devote a lot of time to your investments.
However, it’s also a great way for investors to lose money. I believe that real estate is one of the most overrated investments in America, and very few will show you real numbers to explain why.
That’s why I want to break down the facets of real estate investing, show you a few ways you can get started.
Real estate investing #1: A REIT
REITs, or real estate investment trusts, are a good choice if you want to get involved with real estate investing but don’t want to make the huge commitment of purchasing a property.
That’s because REITs are like the mutual funds of real estate. They’re a collection of properties operated by a company (aka a trust) that leverages money from individual investors to buy and develop real estate. And investors get paid in dividends with REITs just like any other fund. And you, too, can be one of those individual investors.
REITs can focus on a variety of different industries both domestically and internationally, and you can invest in REITs that invest in apartments, business buildings, or even healthcare facilities.
In all, they are an easy and straightforward way to get involved with real estate investing without having to put up an enormous upfront cost of actually buying property. To get started, you just have to go to your online broker and purchase a REIT like you would your typical investments.
If you don’t know how to do that, that’s okay! Check out our article on mutual funds to find out exactly how you can open one.
But let’s say that you have $30,000 just burning a hole in your pocket. If you’re willing to make a much riskier foray into real estate investing, you can take the next two strategies.
Real estate investing #2: Rent out properties
Renting out property seems simple enough:
Buy a house or apartment building.
- Rent out the rooms to tenants for a nominal fee.
- The rental checks come in like gangbusters each month while you sit on a beach in Cabo sipping pina coladas and making passive income.
Hell, that DOES sound awesome — but it’s also complete oversimplification. In fact, renting out property is anything but relaxing. That’s because you’re responsible for all facets of the building you’re renting out as the owner. That includes repairs, maintenance, and chasing down tenants who don’t pay your rent.
And god help you if they do miss a rent payment. If that happens, you’ll have to find another way to pay your monthly mortgage payment.
You CAN make money from renting out properties (many people do!). It’s just that doing so can negatively affect your finances in a BIG way.
Real estate investing #3: Flipping properties
So you were on your seventh episode of your Fixer Upper binge-watch session and it occurred to you, “Hey, I can do this too!”
By purchasing a house or other piece of property and then renovating and selling it (i.e., “flipping” a property), you can flex your creative and business muscle at the same time…
…but it’s also harder than launching your car into space.
Unless you’re Elon Musk, I guess.
Not only do you have to have the money to buy the property but you also need to be incredibly accurate in terms of the finances that go into the renovations you want to put into the home if you want to make a profit.
That includes things like finding a contractor, estimating the cost of repairs/renovations, and being willing to take the dip in your finances while you try to find a buyer. After all, the longer you hold on to the property, the more you lose in mortgage payments.