Much modern investing is relatively impractical; you buy a stock or an index fund, then hold it and let it grow for years or even decades. For prospective investors who are attracted to a more tangible and practical method of investing, real estate is a popular choice.
It may not be the easiest method and there can be a steep learning curve when you first start, but the rewards are potentially quite lucrative, and if getting into real estate is something you want to do, you have to start somewhere!
Why invest in real estate?
Historically, real estate has been one of the most reliable ways to make money and many of today’s millionaires say it’s still a smart investment, for a variety of reasons.
On the one hand, investing in property provides you with a way to diversify your investments. There are many moving parts in the economy, and there is always the possibility that one may collapse while others prosper.
Second, real estate gives you ownership of a tangible asset that can be appreciated. While you enjoy watching the value of the stock increase, it’s all very abstract. There is something attractive about having a physical investment that you can actually see, visit and improve upon.
And since people will always need a place to live, properties tend to maintain their value as long as the property is well maintained and the area is attractive.
There is also a decent amount of flexibility when you have properties as you can decide whether to rent, sell or subdivide them for a different purpose, among other things.
That said, there is also a big note of concern that you should take into account. This business can be big and expensive and is never a sure thing, especially when it comes to beginner’s real estate investments, it is advisable to proceed with caution. You don’t want to overstretch your finances before you are ready and end up with a debt that will cost you to pay off.
Properties for rent
We will start with the traditional method: Buying a property and renting it to the tenants. You can buy anything from a single-family home to a multi-family home or a commercial property or a warehouse as you can then rent it out. If you want a hands-on experience, you can be the landlord yourself.
If your goal is to generate passive income, you can hire a property management company to handle the day-to-day logistics for you. It will reduce your earnings, but it will also save you time and stress.
Many people also like to buy a house, duplex or other type of multi-family unit, live in one part and rent the other parts of the property. This can help you pay back a loan or even cover your expenses completely, so you’re essentially living there for free.
Improve and sell a property
The idea of doing this offers a totally different view of the property. Instead of a long-term effort to manage tenants, it is meant to be temporary.
The idea of this is to buy houses or properties that need renovations to take the time to repair them to improve the value and then put them on the market at a higher price. The ideal is a relatively short-term situation, as the intention is to sell quickly and move on to the next one.
Real estate crowdfunding
This is a unique and quite new method of real estate investment. Through real estate crowdfunding platforms you can invest in specific real estate projects whose buyers are looking for loans. The platforms screen buyers and projects to ensure they are legitimate before presenting them to members.
There are two basic types of real estate crowdfunding; debt or equity investment.