The real estate market is a lucrative one—buying and investing can be not only fulfilling but highly profitable if done right. You can diversify your portfolio and create an extra stream of income.
The first step is knowing how to start. Where do you invest? How? Truthfully, there are several ways to step into real estate investments, with varying degrees of effort and maintenance.
Here are some of the best ways to start investing in real estate.
Rent out a room
This is one of the simplest ways to dip your toes into real estate investment: got a spare room in your house? Rent it out.
Like the other investment opportunities, this has varying degrees of commitment: you can sign up for short-term stays through sites like Airbnb or VRBO (be sure to check your HOA bylaws to see if they have any rules against this and your local municipality for any regulations), or you can set up a short-term lease with eager locals hoping for a place to crash during ski season (Facebook groups such as Roaring Fork Swap or Roaring Fork Rentals are great places to scope interest).
This is a very accessible and low-key way to enter the market on your own terms—and you can easily step away if it’s not for you.
On a larger scale, you can go the route of buying and renting out an entire property. This is best suited for investors who can take on that hands-on role as a landlord and have the skills to manage tenants.
The pros are that this form of investment can provide regular income, often with appreciating home values. There are also many tax-deductible expenses. The downsides are the potential damages from tenants, the tediousness of being a responsible landlord, and that this strategy requires capital to get started and finance the property up-front, as well as maintenance funds and money to cover the months where the home is vacant.
Flip a house
You’ve maybe seen this on HGTV—house flipping can be a lucrative way to invest your money. Here’s the gist: you buy a house that’s in rough condition for cheap, do an entire renovation as cheaply as possible, and then sell the house for a profit.
This comes with risks since it can be hard to accurately estimate the number of repairs needed and how much that will cost. A contractor can help to lend their experienced eye, though that partnership splits the profits. Also, the longer a flip takes, the more expensive the costs are, just because you still have to pay the monthly mortgage.
However, successful flips can be a lucrative business with a pretty short turn around.
Buy real estate investment trusts (REITs)
REITs are a handy way to invest in real estate without having to buy a traditional physical property. They’re similar to mutual funds—different companies that own commercial properties (like hotels, apartments, offices)—that you can invest in with typically high dividends.
REITs are a popular option for people in retirement, working well for investors who don’t need a regular income and can reinvest the dividends to keep growing. New investors are advised to stick with publicly-traded REITs, which can be purchased via brokerage firms, which can help you navigate their complexities and risk.
Consider online investing platforms
There are several companies that are known as digital middle-men: they connect borrowers with investors, who are willing to borrow funding for real estate projects, typically larger commercial or residential deals. The financing often takes place through debt or equity, and the investors look to receive distributions (either monthly or quarterly) in exchange for their contributions.
The process, though done online, still requires investing capital on your end, though it’s less money than is required to close on a property outright. With these platforms, you can invest in single projects or an entire portfolio of projects, which can also be handy for geological diversification.
According to Nerd Wallet, they’re similar to crowdfunding sites, just specific to real estate. But similar to more traditional real estate investments, they are illiquid: “you can’t easily unload them the way you can trade a stock.” There are also management fees involved in using these sites.
Ready for more?
Curious about the local market for flipping? Want to list your extra room for rent? If you’re interested in investing in real estate but aren’t sure where exactly to start or which option is right for you, feel free to connect with the team at Sopris Realty today. Contact us online or give us a call at 970-945-7677.