5 Simple Ways to Invest in Real Estate

Do you want to invest in real estate? Let me tell you, this is the best time to buy your dream home. The real estate sales declined in the last 7 months because of the COVID-19 pandemic and lockdown. The country is slowly opening, so are new properties. With not much decline in the previous prices and lower mortgage rates, you should consider buying your favorite home before the prices start to skyrocket..

What you must know about Real Estate?

The term ‘Real estate’ basically means the property consisting of land and the buildings on it, along with the natural resources such as crops, minerals, trees, or water; immovable property of this nature.

Real property, like real estate, includes natural and artificial resources connected to a certain piece of land but it also encompasses the rights of use and enjoyment of certain land, as well as any of its improvements.

It is important to make a distinction between the two mainly because in a legal term these two phrases stand for entirely different things.

While dealing with real estate, you must consider consulting with your real estate attorney in Ankeny to better understand how you can secure your immovable asset. Each step of the way, you must be informed about real estate laws governing the buying, using, and selling of property.

Each state in the U.S has its own real estate law that oversees deeds, titles, purchase financing, zoning, taxes, and estate planning. According to Iowa State Law, you can purchase and/or sell a residence by using a real estate licensee. (Licensee is basically a salesperson or broker. However, a licensee can only help you during the transaction.) A real estate attorney helps you throughout the process.

5 Simple Ways to Invest in Real Estate

Owning real estate is a lucrative investment. Unlike stock and bond investment, prospective real estate owners can use leverage to buy a property by paying a portion upfront, then paying off the balance over time.

Search for Rental Properties

Before owning a property, you must narrow down your location. Narrow down your choices to a specific state, city, or better yet, neighborhood. A property located close to public facilities like supermarkets, schools, and hospitals will be a more desirable investment.

Owning rental properties is one of the most promising investments with quick gains. You can immediately start renting out rooms or apartments. It’s a great opportunity for individuals with do-it-yourself (DIY) and renovation skills and has the patience to manage tenants.

To do this, you have to purchase a house that has a combined monthly mortgage payment, home insurance payment, and property tax payment lower than the rent the property commands.

Buying rental properties may require you to pay up substantial up-front capital on maintenance.

Few advantages of owning a rental property are that it provides you with regular income. It also helps to maximize capital through leverage and introduces many tax-deductible associated expenses.

No responsibility is small. Owning rental property will also put you up as the caretaker of the property. It can often be tedious managing tenants when you don’t have any previous experience. If rooms are vacant, you can’t earn income from it.

Overall it is a lucrative investment if you can maintain the property and manage tenants.

Real Estate Investment Groups (REIGs)

A real estate investment group (REIG) refers to an entity that focuses the majority of its business on investing in real estate. It’s a great way to invest in real estate without purchasing or running any real estate. You can basically invest funds that will be used by REIG to search, buy, renovate, sell, and finance properties.

REIGs are like small mutual funds that invest in rental properties. They basically invest in buying or building a set of apartment blocks or condos. They allow investors to purchase these properties through the company. An investor can own one or multiple units of self-contained living space. The company operating the investment group will collectively manage all of the units, including handling maintenance, advertising vacancies, and interviewing tenants. As a management fee, they take a portion of the monthly rents.

The advantage of investing in REIGs is that you can earn regular income and appreciation without doing much. You’ll also receive some income even if your unit is empty. A standard real estate investment group lease is in the investor’s name, and all of the units pool a portion of the rent to guard against occasional vacancies as long as the vacancy rate for the pooled units doesn’t rise too much.

There are always chances of vacancy risks that you must undertake.

House Flipping

It can be a bit tricky but extremely rewarding. House flipping basically means purchasing properties under market value, fixing them up, and then selling them for a profit.

You must have an eye to hunt down bargain homes. It is for people with significant experience in real estate valuation, marketing, and renovation. When you undertake house flipping, you must be aware that the property would or wouldn’t sell out immediately. You would end up paying the mortgage on a property over the long term. Finding homes that are in a good neighborhood is equally essential to house flipping.

House flippers often look to profitably sell the undervalued properties they buy in less than six months. Pure property flippers, on the other hand, often don’t invest in improving properties. For them, the investment must already have the intrinsic value needed to turn a profit without any alterations, or they’ll eliminate the property from contention.

Flippers who are unable to swiftly unload a property may find themselves in trouble because they typically don’t keep enough uncommitted cash on hand to pay the mortgage on a property over the long term. This can lead to continued, snowballing losses.

Real Estate Investment Trusts (REITs)

Real Estate Investment Trusts are great ways to invest in real estate without being so actively involved. You’d be investing in the stock market. REIT is a fund set up to invest in mortgage instruments, bonds, and stocks.

As Investopedia explains it,

A real estate investment trust (REIT) is best for investors who want portfolio exposure to real estate without a traditional real estate transaction.

A corporation must payout 90% of its taxable profits in the form of dividends in order to maintain its REIT status. By doing this, REITs avoid paying corporate income tax, whereas a regular company would be taxed on its profits and then have to decide whether or not to distribute its after-tax profits as dividends.

One advantage of investing in REITs is that it’ll allow you to enter into nonresidential investments, such as malls or office buildings that are generally not feasible for individual investors to purchase directly.

More important, REITs are highly liquid because they are exchange-traded. In other words, you won’t need a realtor and a title transfer to help you cash out your investment. In practice, REITs are a more formalized version of a real estate investment group.

There are a few different types of REITs such as equity, mortgages, and hybrid. All three typically offer high yields so if you’re short on time, investing in REITs is probably the way to go.

Online Real Estate Platforms

The online real estate investing platforms allow you to join others in investing in a bigger commercial or residential deal. The entire process is done via online real estate platforms, also known as real estate crowdfunding. It still requires investing capital, although less than what’s required to purchase properties outright. While real estate crowdfunding is inherently risky, real estate investments can help diversify your portfolio and provide competitive returns.

Some of the popular real estate crowdfunding sites are CrowdStreet, DiversyFund, EquityMultiple, Fundrise, PeerStreet, and RealtyMogul.