Real estate is a lucrative investment opportunity. Unlike stocks and bonds, real estate investments are relatively more straightforward. At the same time, it can also produce better returns.
Real estate investors can leverage mortgages to pay a portion of the total cost upfront. And the remaining amount can be paid off over time, along with interest.
It is worth mentioning that the upfront payments can vary from 5% to as high as 25% of the total cost.
Perhaps, it is this ability to control the asset that real estate investors like the most.
So, how do you begin your journey in real estate trading?
We recommend you keep reading to find out.
What Is Real Estate?
Usually, when someone says real estate, the first thing that comes to mind is a plot of land or a house. However, real estate is much bigger than what it seems at first sight.
Real estate is a piece of land and any permanent structure constructed on it—for example, an apartment, a house, or a building.
In a broader sense, when someone buys real estate, they also purchase the physical surface and anything that’s below or above it. However, there are some limitations to this definition. Discussing those won’t be justified in the context of this article.
Nonetheless, real estate is typically an asset that is meant for capital and wealth appreciation.
Know Your Options
Before you know your options, it is imperative to mention that there are generally two types of real estate investments. They are namely – residential property investment and commercial property investment.
Both the investments are promising, but certainly, they have their respective cons too.
In general, there are five ways any real estate investor can make money.
- Rental Properties
- Real Estate Investment Groups
- House Flipping
- Real Estate Investment Trusts
- Online Real Estate Platforms
Let’s dig a little deeper and understand how each of these money-making strategies works.
Rental properties are particularly excellent for individuals with DIY and renovation skills. However, it requires key management skills. For instance, it requires a substantial upfront capital investment. On top of this, you’d need to manage your costs for the vacant months too.
That being said, rental properties generally provide opportunities for regular income.
As a rental property owner, you can also expect your property to appreciate over time. Thus, maximizing your capital and also offering you several tax benefits.
Real Estate Investment Groups
If rental properties seem lucrative to you, but you don’t want to actually own a property, consider real estate investment groups (REIGs).
Investments in REIGs often require a capital cushion and access to financing. Typically, REIGs can be assumed to be similar to small mutual funds.
An REIG would construct a set of real estate properties and then allow investors to purchase them. But, the management of all the properties is still left with the group. Thus allowing better appreciation and more returns on investment.
If you’ve been investing in real estate properties for some time, this opportunity might work best for you. But, even if you have no experience, you can still start house flipping.
The practice usually requires a lot of capital, but the returns are higher and more promising. It can indeed be regarded as one of the best short-term trading strategies in the real estate market. Just make sure you look into undervalued properties that you can sell for profit.
If you have extra capital lying around, you can even invest in high-priced properties. Further, you can add value to these properties by renovating or remodeling them. And sell them for a reasonable profit margin.
Real Estate Investment Trusts
Unlike traditional real estate transactions where investors either need to know the property or buy it, investment trusts offer more flexibility. In most cases, the investors don’t even bother to know where their money is used.
A real estate investment trust (REIT) is considered best for investors who wish for exposure. And, of course, to build their portfolio from scratch. Moreover, REITs are generally traded over exchange markets, similar to how other stocks or bonds are traded.
In most cases, the trusts are required to pay 90% of their taxable profits as dividends. In other words, the investors earn from appreciation as well as rental income.
Besides, it is worth mentioning here that most REIT investors are seasoned in stock markets. Meaning, if you have experience in stock trading, it could be an added benefit for you to trade in REITs.
Online Real Estate Platforms
Ever heard of crowdfunding? Yes, the strategy to raise funds when you cannot purchase an asset or build equity with your personal capital. The same strategy is popularly used in real estate investments too.
Popularly known as a real estate investment platform, this crowdfunding strategy is most suitable for investors seeking profits in others’ investments. For instance, if a group or an investor wishes to invest in more extensive commercial or residential properties, online real estate platforms can help.
However, even this strategy requires capital for investment. The platforms only connect investors who are looking to finance real estate projects.
For example, investors can put their money into it if a new builder or construction company is created. In most cases, the investors like to diversify their investments to balance out the odds.
One of the primary sources of income from real estate investments is a rental property. But it is not the only one that’s promising enough. With a careful understanding of the market and its trends, profits and potential within the real estate can be managed.
For beginners, more focus should be laid on learning the market norms and trends. But, once learned, it is imperative to learn and grow an investment portfolio.
Unlike any other equity-based asset, real estate is often regarded as a hedge against market downfalls. Besides, for many, it is actually a sure-shot retirement plan that never fails.
On this note, we’d like to recommend that if you’re thinking of investing in real estate, don’t think anymore. Instead, start investing and earning profits. Or if not for profits, you can surely expect to grow your capital.