As of last year, only 15% of Americans were investing in properties outside of their primary residence. Many people believe real estate is a good investment but so few of them actually take advantage of it. So, what holds people back? The costs and skills needed to get started.
While some forms of investing involve renters, there are actually several different types of real estate investing, and some of them don’t involve renters at all. Here are the 4 Types of Real Estate Investing:
1. Home Ownership
Many people don’t view it this way but simply buying a house means you’re investing in real estate on some level. While you’re not actively making money or increasing cash flow on your home, it’s still an investment. However, paying off your home and owning it outright is one of the best long-term investments you can make and allows you to have many more financial options – now and down the road. Here are the 7 promising signs that the home you’re buying will have good resale value.
2. Rental Properties.
The top benefit to rental properties is that the rental income becomes an additional revenue stream, which can, in turn, be used for retirement, college fund, etc. If done properly, it could easily add thousands of dollars to your yearly income. Then, when you go to sell the property, you can earn a nice profit if it’s increased in value. However, this isn’t as easy as collecting rent, there are times where tenants may not pay rent or you’re in between renters. Plus, you need to keep in mind additional expenses for maintenance, repairs, and insurance.
3. House Flipping.
Flipping a house means you purchase it, make updates and improvements, and then sell it within a short time frame. Remember, to make a decent profit you need to buy low because you never know what expenses will come up that are more then you planned for which will eat into your profits. We’ve all watched HGTV and know how this goes.
4. Real Estate Investment Trusts (REIT).
REITs are a way to invest in real estate but not exactly recommended for 1st-time investors because when you invest this way you don’t have control in the decisions made about the properties. In short, investors buy “shares” of a real estate investment trust to receive a percentage of the income produced. These investments are common in Commercial and Multifamily properties because the barrier of entry is high. Individuals are able to pool financial resources to build wealth on larger scale investments.
Regardless of which route you go, there are two ways to make money in Real Estate Investing: Appreciated Value when the property is sold and Rental Income once renters have been secured.
Investing in Real Estate is a big commitment and whether or not real estate investing is a smart idea, depends on you, your financial situation, and your future goals.