There’s no question that real estate investing is one of the greatest methods to build wealth. However, it can seem intimidating to many people because of the high cost to start investing and the complexities that come with investment real estate.
Luckily, real estate investing doesn’t have to be expensive or complex. There are methods of investing in real estate that pretty much anyone can use with virtually any amount of money. Anyone can become a successful real estate investor with the right knowledge, even if they don’t already have a ton of cash to start with.
Easiest methods to start investing in real estate
Real estate investing works in many different ways, but we’re going to focus on three of the simplest options.
Investing in REITs
A real estate investment trust, or REIT, is a real estate investment company that allows investors to pool their money to invest in real estate. The company is then required to distribute at least 90% of its taxable income to investors in the form of dividends.
One of the great things about REITs is that many of them are publicly traded, so purchasing shares is a simple process. You can also start investing in REITs with virtually any budget, since there are many great publicly traded REITs with shares priced less than $50.
If you have a limited budget, you can start small and grow your investment portfolio over time. Many investment brokerages allow you to schedule recurring transfers into your account, so it’s easy to invest a little bit from your paycheck.
Besides being a simple and affordable way to invest in real estate, REITs are managed by some of the most experienced and knowledgeable experts in the industry, and they have the most advanced tools and resources available. Investing in a REIT allows you to invest alongside some of the most successful real estate investors in the world.
You can also choose to invest in a private REIT. These REITs aren't traded on the stock market, so you typically have to purchase your shares directly from the REIT itself.
With REITs, you can earn passive income through dividends while the company grows in value. Then, when the time is right, you can sell your shares in the REIT to profit from the capital gain on the share price.
Crowdfunding is similar to investing in a REIT in that you're pooling your money together with other real estate investors. One of the main differences, however, is that real estate crowdfunding usually requires you to have your money invested for a minimum amount of time. There is also a higher minimum investment in most cases.
Most crowdfunding investments are for a specific property, or portfolio of properties, which gives you more control over how your money is invested compared to a REIT. The properties you invest in through crowdfunding can be anything from a residential fix-and-flip property to a multimillion-dollar commercial real estate investment property.
Crowdfunding is an excellent option for the passive investor who doesn't want to manage any properties or keep an eye on their REIT portfolio to make decisions on when to buy and sell. Once the investment is made, you just wait for the checks to come.
Buying a rental property
Purchasing a rental property is an excellent option if you have the capital available for the down payment and the time to put into managing the property. A rental property will provide you with monthly cash flow from the rental income, allow you to build equity, and give you the experience and knowledge you'll need as you grow your real estate portfolio.
Even if you don't have the capital for a down payment on a rental property, you may be able to find some creative ways to get a deal done. You may be able to find a seller willing to offer land contract terms with a low down payment, or use a method referred to as "house hacking." House hacking involves buying a residential property with multiple units, like a duplex or triplex, living in one unit, and renting out the others. You may even be able to qualify for FHA financing if you do it properly.
If you choose to invest in a rental property, it's important to remember that you'll need more money than what's needed for the down payment. You'll need to factor in closing costs, holding costs until you're able to secure a tenant, and capital reserves to pay for repairs and maintenance.
Gain the necessary knowledge
Whichever way you choose to start investing in real estate, the most important thing you can do is educate yourself. While real estate has built wealth for more people throughout history than any other investment, you can still lose everything if you don't know what you're doing.
A new real estate investor should start out by learning the basics of how real estate investing works. Even if you only intend to invest in REITs and crowdfunding and never plan to be involved in property management yourself, knowing how it all works will help you make better investment decisions when choosing which REIT or crowdfunding campaign to invest in.
Some investors choose to become a real estate agent or even just take real estate license classes. However, there are several other resources available to gain the knowledge you'll need to become a successful real estate investor. You can even find all of this information right here on Millionacres.
Growing your real estate empire
As you gain experience and start profiting from your investments, you'll most likely want to grow your real estate business. Many investors that begin with a single rental property will use the equity they build over time to invest in larger properties with more units. Some investors will even grow their REIT portfolios to the point where they're able to cash it in to purchase their own property.
No matter how big you plan to grow your real estate investment portfolio, the most important thing you can do to stay successful is continue learning. Anyone can start investing in real estate, but building wealth requires knowledge.