Real estate investments are a smart way to get rich and earn some passive income. If you want to put a large sum of money to good use or even multiply your current income, try investing in real estate.
The benefits are numerous, but beware! Real estate investing isn’t just about buying and renting properties. In fact, there are many types of real estate investments that you should be aware of before you start investing.
1. Renting Properties
Become a landlord and earn money by renting out space (or multiple spaces) in a property you own. It can range from renting out a spare room to leasing out a whole building! This form of real estate investment is also called ‘buying and holding’; some important kinds of investment by renting are:
- Residential: you earn by renting out property for people to live in. Residential rentals can be long-term (yearly leases) or short-term (usually for vacations).
- Commercial: rent a space you own to a business. This could be office space, a retail showroom, a factory, or even an event hall. The rent for commercial property is usually higher than residential leases, but it also needs higher maintenance.
While renting is a good way of earning a stable income, you still have to manage your tenants and regularly maintain short-term rentals.
2. Flipping Houses
If you think you have an aesthetic sense for interior and exterior decor, look no further. Flipping houses is like a rapid-fire round of buying and selling properties for a profit. The classic idea of flipping is to buy a (usually low-valued) property, ‘fix’ it and sell it for a higher price.
Most flippers ideally move from house to house quickly, so good contractor connections and in-depth knowledge of the real estate market are a necessity. Yet, flipping is also done in multiple ways:
- Fix and Flip: the traditional route of buying an undervalued property, renovating it, and then selling it for a profit. While it can earn you profit in less than a year, this quicker flipping is also highly risky. You might get stuck with a house you can’t pay for if no one buys it.
- Live-in Flipping: fix a house at your own pace while you live in it too. Live-in flipping is ideal if you are in no hurry to flip and if you don’t mind all the construction noises.
If you have enough knowledge of the market value and preferences regarding houses, flipping can make you lots of money. But sometimes, renting out a renovated house might be a better long-term investment, especially because you have to pay short-term gains tax when you flip within a year of buying property.
3. REIGs and REITs
If you find direct investment in real estate too risky, especially if you are a newbie, start here. Invest in real estate groups or trusts, which handle all the maintenance work for you. Here’s what they specifically entail:
- Real Estate Investment Groups: some companies which own large rental complexes sell portions to investors. The investors earn rent from their part of the property and pay a certain percentage to the company, which assumes responsibility for all the maintenance.
- Real Estate Investment Trusts: REITs work like the stock exchange. You can buy shares in a company that owns commercial property and receive dividends. This is a very quick method of investing in real estate because you are essentially buying shares; you can instantly sell and buy. Another benefit is the 90% return rule, which means that REITs will have to pay the investor 90% of the income as dividends, by law.
Both REITs and REIGs are great real estate investment options, especially if you don’t want to get into the hassle of maintaining a property or managing tenants.
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