Intro to Investing in Real Estate

Real estate is one of the most, if not the most popular investment vehicle. It is super popular and well-liked not only because of its potential return on investment but also because it is tangible. Tangibility is not too common among investments. It generally provides the investor with a sense of safety and comfortability compared to other investments. Here we’re going to cover the most common that people invest in real estate.

First, people invest in real estate by renting out a property or multiple properties. Simply put, an investor generates profit from a rental by charging their renter a higher rent than what their mortgage is. This brings in monthly income that reoccurs for as long as a tenant is occupying the home. Purchasing a house to rent out can be costly adding up a downpayment, closing costs, etc. A lot of people just simply don’t have the capital to invest in purchasing their own home let alone one to rent out to others. Some people will purchase a home themselves and rent out only certain rooms of their home to make some money and still have their own place to live. When it comes to real estate there truly are a wide variety of option to choose from for your investing approach. Investors can expect anywhere between a $100-$400/month profit from a rental house. People can also rent out their property as a vacation rental, whether it be a long or short term one. Vacation rentals are more commonly used as investment vehicles when the investor still desires to enjoy that specific property themselves but maybe can’t find it financially responsible to keep the property sitting vacant the majority of the time.

Now flipping houses has become a popular idea in a lot of people’s heads. The idea of buying a property for cheap and flipping it for way more money sounds really awesome right. Well, it is but it comes with a lot more than just that. Flipping houses will cost even more than renting out houses become repair costs are pricey and those payments aren’t amortized over 10, 15, or 30 years. The combination of the downpayment, repair costs, closing costs, and more quickly rack up and result in a pricey investment. With a lot of hard work, research, and capital, flipping houses is definitely profitable, but just like every investment, it isn’t for everyone.

Finally, the last common way to invest in real estate is through REITs (real estate investment trusts). I briefly talked about REITs in a previous article of mine called “Intro to Common Investment Vehicles”, but now I’ll go in more depth about what they are. REITs are the best way to get into real estate if you don’t have the capital to invest in properties yourself. REITs are companies that either manage, own, or deal with property and by investing in them through the stock market you are investing in the real estate sector, without even needing to purchase any property directly yourself. REITs are much more liquid than tangible property, so shares of a REIT can be sold much more quickly than property can be. REITs also allow you to diversify your real estate portfolio rather than investing in a single property. Of course, when it comes to investing diversification is a key strategy to maintain profitability continuously. With REITs your initial investment is oftentimes less than it would be if you were to buy a property yourself, so your ROI (return on investment) will reflect that. You can actually invest in a REIT for as little as ~ $5.00.

These were the three most common ways to invest in real estate, and each method has its own benefits and disadvantages. It is really up to you to decide which method of investing is best for you. After reading this you may decide that real estate doesn’t interest you, or on the contrary, you may decide that you are super passionate about real estate. It’s important to love what you are investing into so keep that in mind when you start or continue to invest. You must analyze your own portfolio and determine what your goals are in the future. You must assess your personal risk tolerance and also base your investment decisions on that.