Despite a year of considerable problems, the managed real estate market grew to $10.5 trillion in 2020. It is now 1.6 times the size it was in 2010. The solid performance of the property market in the midst of the COVID-19 pandemic reflects on investors’ steadfast pursuit of profits across asset classes.
On the other hand, investing in the market post-pandemic, may call for a few particular changes. Lockdowns and shelter-in-place orders appear to have locked in already-existing cultural shifts, especially in the retail and office sectors.
Buying and owning property may be a lucrative and gratifying investment strategy. Real estate buyers, unlike stocks and bonds, will utilize the advantage to buy a home by financing a portion of the whole cost now and then repaying the amount, over time, plus interest.
While most conventional mortgages require a 20% to 25% down payment, in certain situations, only a 5% down payment is sufficient to acquire an entire house.
This capability to own the property as soon as the documents are completed gives real estate flippers and landowners more confidence to get second mortgages on their homes to fund down payments on more properties or leverage hard money loans for short-term financing to fix and flip.
Here are five important ways real estate investors can make a profit.
5 Easy Ways To Make Money Investing In Real Estate
1. Real Estate Investment Trusts (REITs)
REIT is the ideal choice for investors who really want property exposure in their portfolio without having to make a typical property purchase.
Whenever a company (or trust) uses money from investors to buy and manage properties for income, it is known as a REIT. REITs, just like any stock, can be bought and traded on the major markets.
To keep its REIT status, an organization needs to pay out 90% of the profits from tax in shares. REITs avoid paying company tax in this manner, whereas a standard firm would be charged on its revenues and have to determine to either disperse the after-tax profit as dividends.
As typical dividend-paying equities, REITs are a great option for stock market investors seeking consistent income. Contrary to the following categories of property investment, REITs allow members to invest also in non-residential projects such as grocery-stores and office complexes, which are typically not available for individual investors.
More importantly, since REITs are traded on an exchange, their liquidity is really high. In other words, you won’t require an agent or a title transfer to get your money back. REITs are a more formalized version of a real estate investment group in practice.
Finally, investors should differentiate among equity REITs that own buildings and mortgage REITs that provide real estate funding and dabble in mortgage-backed securities while looking at REITs (MBS).
Both provide property exposure, but the form of that exposure differs. An equity REIT is more conventional in that it symbolizes property ownership, whereas mortgage REITs concentrate on the revenue generated through real estate mortgage financing.
2. Real estate crowdfunding
Real estate crowdfunding is a method for businesses to raise funds from a large group of people. It’ll be managed through online platforms that serve as a meeting point/marketplace for property developers and potential investors.
Investors would get debt or equity in a construction project in exchange for their money, as well as monthly or quarterly dividends in successful cases.
Not everyone has access to all real estate crowdfunding platforms: Most are only accessible to authorized investors, or those with a high net worth and/or extensive experience.
You open an account on an online platform and then choose whether an investment portfolio lines up with your goals, with brokers distributing your money across a series of investment funds, or you simply browse and select investments yourself while keeping track of their development on a 24/7 online dashboard.
3. Real Estate Investment Groups (REIGs)
REIGs are ideal for individuals who would like to own a rental property but wouldn’t want to bother with the complexities of managing it. Making Investment in REIGs requires a deposit as well as access to funds.
REIGs are rental property investment groups that are very similar to small mutual funds. In a conventional property investment company, a corporation buys or builds a series of apartment blocks or units, then enables investors to acquire these properties via a firm thus becoming members of the firm.
An investor can purchase more than one self-contained housing property, but the investment group’s management firm oversees all units, including advertising vacancies, maintenance, and tenant screening. The organization takes their cut of the rent in exchange as a service charge for managing everything.
A typical property investment cooperative lease is in the name of the investor, and all of the properties share a part of the rent to prevent vacancy. As a result, you will receive some money despite a unit being vacant. There will be enough to pay the expenses as long as the occupancy rate for the pooled units does not surge too high.
4. Buying and selling houses
Flipping houses is only for those with an extensive knowledge in real estate assessment, renovation, and marketing. Flipping houses requires money, and also the skill to renovate or oversee renovations as required.
This is the “wild side” of property investment, as they say. Property flippers vary from buy-and-rent landowners in the same way that day traders vary from buy-and-hold investors. Property flippers, for example, constantly seek to profitably sell the discounted homes they purchase in less than six months.
House flippers rarely spend time renovating their homes. As a result, the purchase should already have the inherent value required to earn a profit with no changes, or it’s possible the property will not be considered.
Flippers who cannot quickly sell a home may find themselves in problems since they often do not have enough available funds to cover a property’s lease over time. It can lead to a downward spiral of losses.
Another type of house flipper earns money by purchasing low-cost houses and refurbishing them to increase their worth. This could be a longer-term investment when buyers can only afford to take just one or two units at once.
5. Real Estate Rentals
Individuals with the experience in renovation and skills in do-it-yourself (DIY), as well as a willingness to handle tenants, may find that owning rental homes is a terrific opportunity. However, this technique calls for a significant amount of capital to fund up-front maintenance costs and to last during vacant months.
As per the United States Census Bureau data, new property sales prices have grown steadily from 1940 to 2006, until dropping during the financial meltdown. Following that, selling prices started to rise again, ultimately approaching pre-crisis rates. The coronavirus pandemic’s long-term effect on property prices has yet to be determined.
Bottom Line
It’s easy to build a comprehensive investment program by investing a fairly modest portion of a property’s overall worth upfront, either real estate investors utilize their assets to generate income from rent or to bid their time until the ideal opportunity of selling arises. Like any other investment, real estate has great potential for profit, regardless of whether the entire market is down or up.
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