In this post we are going to discuss six different ways to invest in real estate. These are just wave top options as there are so many different ways to get started in real estate investing. Here are my six favorites:
1. Rent out a room
If you already own a home, this is a great option. You can rent out a portion of your home on a site or app like Airbnb. Renting out a room or portion of your home allows you to generate additional income on your terms. Short term rentals are great for just that, short term. An awesome benefit to renting out a room with Airbnb is that your short term tenants have been prescreened and you are protected against damages.
Renting out a room might not feel real estate investing, but it is. If you’ve got a spare room, you can rent it and pocket some extra cash.
Just like any other investing decision, you should make sure this benefits you. If you have a family with small children would something like this even be an option? If not, there are many other ways and we are discussing more of those below.
2. House hack
One of our favorite YouTube channels to follow is Graham Stephan’s channel. He started off in real estate by house hacking and essentially living for free.
When you house hack, you live in your investment property while renting out another room, or portion of the house long term.
This type of investment is a really smart move for college students or younger single people. This, like doing a short-term rental on a room can be difficult if you have a family. This doesn’t mean it’s not possible.
For example, my uncle lives in Rome, NY. He bought a very large triplex that is essentially three different units in a large home. He lives with his family in one unit while renting out the other two. The beauty of this is he is essentially living for free and still making a little extra cash.
If you can swing it, this is one of the best ways to get started. Buy a property you plan to live in and let your renters pay it off for you!
3. Invest in rental properties
This happens to be the choice of investing for myself and many other real estate investors. Right now, I invest in multi-family units (duplex, triplex, and quadplex). These can be hard to find depending on the state you are looking at. I invest out of state so the important part of this is building a good team before you start. I already had a good property manager lined up as well as a general contractor and fantastic realtor.
Some things to consider when buying an investment property is that:
- Most lenders will require a whopping 25% down since you are not occupying the property.
- You will likely have some type of repairs to do
- You may not always have tenants in the property when you buy
Some other things that are extremely important when buying a rental property is to use the 1-2% method. I learned about this listening to the Bigger Pockets podcast. Basically a quick way to see if the deal will work for you is if the monthly rent equals about 1-2% of the property value. You need to be able to pay your expenses and still make at a minimum $100 per month for it to be worth it. Here is a sample of some expenses:
- Mortgage
- Utilities
- Property Taxes
- Property Insurance
- Repairs
- Lack of occupancy (5% but can vary based on location)
Once you have considered all of this and you think you are ready, then go for it. You can always download our rental property calculator here.
4. Consider flipping properties
If you already have enough money saved up, consider taking some of that cash and buying a property that needs a little TLC and put some work into it. Even if you don’t have the money saved up, you can consider doing a short-term interest only loan.
Consider partnering up with someone experienced in flipping. Learn what made them successful. Flipping can be high risk so having experience on your side will be helpful.
Good research is extremely important when flipping a property. If you don’t make enough on the resale, you can really lose big time. The important thing is to learn the market you plan to buy in. Research what comparable homes in the area are selling for. Make sure you leave a profit margin large enough to make up for it if you need to sell for a lower price. Have more than one exit strategy as well. If you need to refinance it with a new long-term mortgage and make it a rental, then be prepared to do so.
5. Try a real estate investing platform
Another pretty cool option to invest in real estate would be through a real estate investing platform. These platforms connect the investor (you) to multiple real estate developers who are looking to finance their projects. You can expect to receive your returns quarterly. These platforms like any investment come with risk. Just like any other real estate project, things can fall through, or unexpected expenses can pop up.
Now the big thing about these kinds of platforms is that you need to already have money. You need to have a net worth of at least $1 million or earned an income of $200k (single) $300k (married) over the last 2 years.
Companies such as Fundrise and RealtyMogul are great real estate platform options to check out. Fundrise also has different options if you do not meet some of the requirements listed above.
6. Buy REITs (real estate investment trusts)
REITs are a great option to invest in real estate without owning physical real estate.
REITs are often companies that own office buildings, apartments, public storage, and other commercial real estate. Most REIT investors use this as a platform to create a passive or supplemental income. It is a great option for retirees who wish to put their money into something that will generate a stable income.
New investors should consider staying with publicly traded REITs
There are publicly traded REITs that can be traded like a stock with a brokerage and there are privately traded REITs that are done directly through the trust owners. REITs are often compared to mutual funds. They are relatively safe and stable investments that usually pay high dividends.
REITs allow you to invest in real estate without the physical real estate. Often compared to mutual funds, they’re companies that own commercial real estate such as office buildings, retail spaces, apartments, and hotels. REITs tend to pay high dividends, which makes them a common investment in retirement. Investors who don’t need or want the regular income can automatically reinvest those dividends to grow their investment further.
If you do not have a brokerage account, you can always open one for free on Robinhood or Webull. These brokerages may also offer free stocks when you sign up and open an account with them.
