Straightforward Ideas for Investing in Real Estate
Real estate is one of the most intriguing industries in the world. It is an industry that has helped create some of the best-known billionaires like Donald Bren and Stephen Ross. The industry has also helped secure the future of many retirees. In this article, we will look at some of the most common ways you can use real estate as an investment.
Types of Real Estate Investments
As with all types of asset classes, there are several examples of real estate investments. The most common of them are:
- Residential Real Estate Properties: These are houses that are built specifically for households. The types of houses can be apartments, townhouses, condominiums, and vacation houses. Investors make money by either leasing the buildings or by selling them.
- Commercial Properties. These are properties that are developed specifically for companies. A good example of a commercial property is an office block. Investors make money by either leasing the offices or selling them to companies.
- Retail properties. These are properties that target retail companies like Target, Walmart, and Macy’s. A good example of these properties are shopping malls.
- Mixed Use Properties. These properties combine the three types of properties above. They will have a residential, commercial, and a retail section. They promote the concept of live, play, work.
- Industrial properties. These are properties that are used by companies for large-scale operations. They include factories and warehouses.
Why Use Real Estate as an Investment?
There are several reasons why most people love to invest in the real estate industry. Some of these reasons are:
- High rate of returns. The returns in the real estate sector are enormous. A few months ago, billionaire Ken Griffin bought an apartment in New York for $238 million. This was a sweet return to the apartment’s developer.
- Ease of raising capital. Unlike other types of investments, banks will always love to give you capital to invest in real estate especially if you already own the land.
- Earnings in perpetuity. If you build residential rental property in a good location, you will always have capital, especially after you retire.
- Safe investment. Investing in real estate is a safe investment that has very limited risks. In most cases, you can reduce the risks by having a good insurance.
- Tax benefits. There are a number of tax benefits that come with real estate investing. For example, you can use depreciation to reduce the amount of taxes you pay.
- Government support. The Department of Housing and Urban Development has several incentives for real estate investors.
Ways You Can Use Real Estate as an Investment
This is a relatively old concept but one that has been growing of late. In fact, many large companies like Zillow and Redfin have entered the industry. The idea is to buy a house, improve it, and sell it at a higher price. With online listing platforms like Zillow, Trulia, and Opendoor, marketing the property is relatively easy.
Real Estate Development
You can decide to develop the properties by yourself. To do this, you need to buy a piece of land, get the necessary approvals by the local authorities, hire a contractor, and get the work done. This method has a number of issues. First, in some localities, the process of getting an approval is very long. Second, the cost of developing a project is relatively high. Third, it takes time for the project to be completed. To reduce the costs, we recommend that you pool your resources with a few friends. We also recommend taking financing from banks. As a developer, you can make money either by selling the property or by leasing it to your tenants.
Real Estate Investment Trust (REIT) are listed securities that you can invest in. REITs differ from other stocks in various ways. They must generate 95% of their income from the real estate. They must have a minimum of 100 shareholders, have no more than 50% of the shares held by 5 or fewer individuals, and invest at least 75% of its total assets in real estate assets and cash. REITs must also distribute their earnings to shareholders. Examples of REITs are Boston Properties, General Growth, Vornado Realty Trust, and AvalonBay Communities. A benefit of investing in REITs is that they are efficient in returning capital to investors.
Online Real Estate Investing
Another option for investing in real estate is using the various online real estate investment platforms. A good example of such a company is RealtyMogul, which allows people to invest in vetted real estate projects. The minimum amount one can invest is $1,000. Another online company that you can use is FundRise, which allows people to invest in real estate starting from $500. Other similar companies that you can use are PeerStreet, RealtyShares, and Patch of Land.
Real Estate industry is an ideal method to invest your money, especially now that interest rates and unemployment rate are low and wages are rising. It is a safe way to build wealth and make passive income. However, like in all types of investments, you need to take time to learn more about it before you invest.