Real estate is the cornerstone of wealth creation both in the United States and around the world.
Not only is this asset class a great way to protect wealth, but it’s also been used a remarkably dependable way to grow wealth over time.
Along with appreciating in value, real estate has the added benefit of providing consistent cashflow for your investment portfolio. Not to mention… it’s also just kinda cool to own property.
With this article, I’m going to go into the best ways to get started investing in real estate if you’re a beginner. This is perfect if you want to allocate some of your funds to this asset class, but don’t know how to get started.
1. Fundrise
Fundrise is a revolutionary way to invest in real estate. You can use their website to discover different REIT-style investment vehicles that will put your money in real properties.
You can choose from many different types of funds, including supplemental income, balanced investing, and long-term growth.
Depending on which plan you choose, you can grow your wealth through appreciation or dividend re-investment. You’ll be able to pick from a bunch of different eREITS specializing in different areas of the United States and property types.
RealtyShares is another innovative website that allows you to directly invest in real estate properties online. Think of it as a combination of crowdfunding and real estate investing.
You’ll be putting your money into REAL properties alongside other investors. These properties could include single family homes, retail, multifamily, and more.
Along with choosing from different properties to fund, you can also pick different asset classes like debt, equity, and preferred equity.
The one limitation on RealtyShares is that you must be an accredited investor to participate in these offerings.
3. Publicly Traded REITs
Along with the above mentioned REITs, you can also open up a brokerage account and invest in publicly traded REITs.
Historically, REITs have been a great cashflow investment, meaning that they will pay you dividends. The way it works is that a company will include properties in the REIT’s portfolio and then pass on the gains to the investors.
A REIT, which stands for real estate investment trust, is comprised of a bunch of investors and one company which purchases, manages, and operates the properties in the portfolio. These REITs typically focus on one property type and one asset class, like debt or equity.
For the investor who doesn’t know much about property values, location, and real estate management, REITs offer a great way to get their toes wet in the industry without having to deal with the day-to-day property management issues.
4. Single Family Homes and Rental Properties
If you want to get your hands dirty, many real estate investors with renting out single family homes and other small rental properties to begin to acquaint themselves with how real estate management works.
Typically, the goal is to acquire a small real estate property using a combination of debt and your savings. You then use the rental income to pay off the property’s debt and put some money into your pocket.
Many investors don’t realize that operating a rental property also comes with costs including maintenance, taxes, and unexpected expenses. There are also emotional costs, like dealing with the added workload and communicating with difficult tenants.
This style of investing is not a hands off approach, but it will give you far more than control that handing your money over to a portfolio manager.
5. Fix and Flip Properties
While the goal with owning a rental property is to collect income each month, the goal with a fix and flip property is to acquire a building in need of repair, fix it up, and sell it for a profit.
For whatever reason, the person selling this property might be in need of the money that you use to acquire it. They don’t have the fortitude, vision, or finances to improve the property before they sell it.
You can swoop in, purchase that home, improve it, and then sell it to another buyer. Of course, you gotta make sure that the actual location is great and that the expenditures aren’t too costly. Otherwise, that will eat into your profit margin.
One of the downsides of doing fix and flips is that a tremendous amount of work is required before it’s in the condition to sell. You gotta do renovations, deal with contractors, and stay on-budget to ensure success.
6. Multi-Family Homes
We’re now getting into the types of properties that require substantially more capital, but that also come with large rewards.
Multi-family properties are great investment vehicles because you diversify your risk. When you lose one renter, you still have others that are there to maintain your property’s cashflow. This hedges your potential downside.
Naturally, it will take more savings and debt in order acquire multi-family properties. However, they can be massive cash-generating machines when done correctly. These are not for the novice investor, and you’ll basically be taking on an entirely new business.
7. Commercial Real Estate
Lastly, you can get started investing with commercial real estate. This includes shop or office space that’s used for business purposes.
Because the purpose of this real estate is business-related, the customer that rent from you will not be individuals, but rather businesses.
You gotta know the value of your retail or office space, the attractiveness of location, and the types of businesses that will comprise the demand for the property.
I would not recommend starting with a commercial real estate unless you are a savy investor. There are many different moving parts. You gotta know what you’re doing, how to hire help, and have a team around you to ensure success.
