Whenever there is a discussion on investment, real estate is one of the names people often slip into the conversation. It’s unsurprising, as real estate investing can offer many excellent benefits, including long-term security, tax breaks, steady passive income, and equity.
Regardless of the positives, many people would rather refrain from taking calls about broken toilets, showerheads, and door locks. Rest assured that you can invest and profit from real estate without dealing with disgruntled tenants. So what are your options to get started in real estate? Let’s look at quick ways to start investing in real estate.
Real Estate Investment Options
1. Rental Properties
As you would expect, buying and renting a home is one way to invest in real estate. You buy a property and rent it to tenants as a landlord or use a property management company. The tenancy period can vary, but most are one-year leases. Short-term rentals have recently gained popularity through companies like Airbnb and VRBO.
Of course, you would expect the landlord title to have many responsibilities. For example, you will pay property tax and handle significant repairs and general maintenance as the property owner and landlord. Sometimes, you may even be responsible for replacing appliances and paying for utilities. But, of course, it all depends on the lease agreement.
You profit from the rent you receive from tenants and price appreciation should you sell your property for a higher price than you bought it. You typically need a 20% down payment to buy a rental property.
2. Real Estate Investment Trusts (REITs)
REITs work if you intend to invest in real estate without managing a property. Or it could be because you don’t have a sizeable down payment. REITs are public-traded trusts that can own and control different rental properties. Such properties include malls, office spaces, industrial buildings, etc.
What is even more interesting about REITs is their massive dividend payments. The law demands that REITs pay out at least 90% of their income to investors in the US and 100% in Canada. Any REIT that meets this benchmark does not have to pay corporate tax.
Another unique advantage that REITs have over property rental is their liquidity. Since they trade on the stock exchange, you won’t need a truckload of paperwork to sell it off. It will also not take several months to complete a sale, as is standard with property rental.
3. Real Estate Investment Groups (REIGs)
REIGs are excellent for keeping the profit potential of private rental properties while getting more than you could get from REITs. REIGs buy properties, manage them, and sell off parts of the property to investors. For example, REIGs buy an apartment building and sell units to investors.
The operating company is in charge of maintenance as it retains a part of the rent. The operating company is also responsible for finding new tenants. Where there are vacant units, the investors often pool some rent to sort out debts and other obligations.
4. House Flipping
This is for you if you aim to profit quickly from real estate without waiting for your monthly rent. House flipping is purchasing a house for a low price, renovating it, and selling it off for a profit.
But remember that even though house flipping can be profitable, you should be careful as you could also lose money. You have to do a lot of research to find a suitable property. The property should be in an attractive neighbourhood and be affordable when considering potential renovation costs.
To maximize your profit with house flipping, you must ensure you don’t spend too much on renovations. But, of course, it is always a plus if you can handle renovations independently.
5. Exchange-traded Funds (ETFs)
Real estate mutual funds or ETFs are the easiest way to invest. You don’t have to do anything. A manager or an index chooses the best real estate investment for you. Then, you sit back and collect dividends. ETFs are suitable even for any investor as they provide diversification and liquidity.
These mutual funds invest in REITs and Real Estate Operating Companies (EOCs). EOCs are like REITs except that they reinvest their profit back into their business. As a result, they grow faster than REITs and are subject to higher corporate taxes.
Like every investment, taking the first step will always seem daunting. The most important thing is to choose an investment option that best suits your skills, goals, and schedule.
