Best Ways to Create Wealth by Investing in Real Estate
Have you also considered investing in real estate? You don’t need to have tons of money or be a real estate expert to invest in real estate. There are numerous ways to invest in real estate and diversify your portfolio. By investing wisely, you can easily build wealth slowly and steadily.
This article is about real estate investing for beginners. Here are the most popular ways you can make money in real estate:
Appreciation in property value
The best thing about investing in property is that it appreciates, that is, it increases in value. Although appreciation may not happen all the time, historically, real estate prices tend to appreciate over the long term. For instance, if you bought a house for $200,000 three years ago, and your property is now worth $300,000, property appreciation made you richer by $100,000.
Developing an undeveloped piece of land is the most obvious way to increase its value. When cities expand, the land outside the city limits becomes more valuable because of its potential to be purchased by developers. Building houses or commercial establishments increases the value of real estate even further.
For residential properties, the location plays a key role in appreciation. Houses in neighborhoods with schools, playgrounds, and shopping centers tend to increase more in value than those without these facilities.
Home improvements can also increase the value of your property. Remodeling your kitchen or adding an extra bathroom could be simple ways to boost the value of your house.
Make money through rental properties
Renting out properties is another good way to create wealth through real estate. You may buy a piece of land, build a home, and then rent it out. You could also find distressed properties, fix them, and then rent them out. The idea is that you make money by buying and holding rentals long-term.
Perhaps, the biggest benefit of owning rental real estate is that it creates a steady source of passive income. Your tenants will pay you a fixed amount each month, and this amount goes up with demand and inflation. Having property in a desirable location ensures that you are able to secure tenants more easily.
Commercial properties also offer the same benefits, with rent being the most common. However, commercial property owners can also earn in the form of option income. Many tenants in commercial properties will be willing to pay a fee for contractual options such as the right of first refusal on the office space next door. Even though tenants may not exercise these options often, they are often willing to pay a premium for them.
Invest in REITs
Do you wish to invest in real estate without buying and managing a property? You can do so through REITs or Real Estate Investment Trusts. REITs are companies that finance or own income-generating real estate across several property sectors. They invest in many real estate property types, including apartment buildings, offices, warehouses, retail centers, and more. You can buy REITs invested in different market niches to diversify your holding in real estate.
REITs are listed publicly. So, you can buy and sell your shares on the open market, allowing you to further diversify your investment. REITs are also not linked to other types of equities, which means that the value of your REITs depends on the real estate market and not the stock market.
The benefit of publicly-traded REITs is that they are as liquid as bonds and stocks. They also pay out regular dividends, which means you can make a tidy sum investing in real estate.
Buy real-estate ETFs and Mutual Funds
ETFs or Exchange-traded funds are a group of securities such as shares, bonds, stocks, and more. You can buy ETFs and mutual funds that are invested in the real estate sector. Some ETFs invest in REITs as well as publicly traded real estate stocks.
There are various mutual funds that invest in property management firms and real estate developers. Low costs and high liquidity are some of the benefits of investing in ETFs and mutual funds. If you don’t have too much money to invest in real estate, this is a good way to start.
Renovate to flip
Flipping is another quick way of making money in real estate. It involves buying a house, paying for its repairs, and then selling the property for a profit. The process could be a bit time-consuming since renovating a house takes time. However, you can significantly cut down on the time taken for repairs if you buy a house that requires little reconstruction.
If you find it difficult to sell your renovated property, you may also consider renting it out. You must, however, have an eye for detail since you will need to find undervalued properties. The concept of fix and flip only works if you find properties that are selling for less than their potential values. The idea is to find an undervalued property, repair it, and sell it for a lot more, walking away with the profits.
You will also need to have the necessary finances to buy the property and repair it. Another requirement is an extensive network of professionals who can help you find the properties, fix them, and then sell them.
Choosing the right real estate investment
You have to look at your budget, goals, and risk appetite to choose the right real estate investment.
Some pertinent questions you should ask yourself are:
- How much money do you have to invest in real estate?
- Are you willing to risk owning a property, including finances, maintenance, and finding tenants?
- Are you looking for less risky investments?
- Is it your first investment or are you trying to diversify your portfolio?
The answers can help you figure out which is the right investment for you. Investing in real estate can be a great way to ensure a steady income, earn appreciation, and accomplish your future goals.
However, investing in real estate requires that you have the right kind of support. Having real estate mentoring could be extremely helpful. Mentorship from an experienced real estate expert such as Laura Alamery can help you avoid mistakes that most people make in real estate investments.