Easy Ways to Invest in Real Estate
Buying a home means much more than saying you own your place of residence. Purchasing real estate is also a way to invest your money, much like investing in stocks and bonds. Investing in real estate can have its advantages, but it can also be a bit more complicated than a straightforward stock or bond. Here are 3 ideas to get you started investing in real estate.
This type of real estate investment is one of the more common ones. A person purchases a property with the intention of renting it out to a tenant. The owner will take care of the mortgage and other costs, and the tenant will pay him rent each month. In an ideal situation, the owner will charge enough rent to cover the necessary expenses. Some people choose to charge a little more to make a profit, but the most common strategy is to charge just enough to pay the bills, and start to turn a profit once the mortgage is paid off.
There are benefits to owning rental property. Over the years, if the property increases in value, you will be left with an even more valuable asset. Also, if rental rates start to increase, you may be able to charge more and still remain competitive.
Of course, there are drawbacks to this type of investment. You could have a trouble tenant who causes damage to the property. Worst-case scenario is you can’t find a tenant at all, causing you to have to pay for the mortgage on your own. Also, you will have to personally devote time to keep the property maintained, or spend the money to hire someone else to do it for you.
Real Estate Investment Groups
This is a good investment option for those who would like to own a rental property, but don’t necessarily want the added responsibility of being a landlord. When a company builds or buys a property, they can allow investors to buy units, thus joining the owners in an investment group. Each investor can buy a single or multiple units, but it is the company that takes care of the managing and maintenance for a percentage of each investor’s profit.
There can be different models investment groups, but in most cases, the lease for the rental unit is in the investor’s name. All of the investors will pool a little of their rent to safeguard themselves against a vacancy; meaning even if your unit becomes vacant, you will still receive funds to pay the mortgage.
In general, this is a relatively safe way to invest in real estate, but an investment group is only as good as the company that is offering the property. Investment groups are also subject to certain fees, so make sure you do your research before jumping into such investment.
Real Estate Trading
Like the highs and lows of the stock market, real estate trading comes with its own set of risks. Investors buy properties with the sole intention of reselling it, or flipping it, for a profit. Real estate traders will buy a property, hold it for a few months, and then sell it. The goal is to buy properties that are priced very low or very undervalued.
Some real estate traders will not bother to put any money into fixing up a property; and they only buy properties that will yield them a profit upon selling. Others will buy fairly priced properties and put work into them to make them worth more. This is more of a long-term investment and these types of home flippers usually only work on one home at a time.
There are benefits to this type of investment, if you can find a property for a really good price, you could stand to make a really big profit on it. However, there is always a chance that you will not be able to find a buyer, leaving you to foot the bills and the mortgage.
Real Estate investment can give an investor a big return if done right, but there are also some risks. If you are considering investing in real estate, you should seriously consider seeking the advice of an experienced real estate attorney.
Written By Bert Millett – Gunderson, Denton & Peterson, P.C.
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