Ways to invest in real estate: Investing in real estate sometimes becomes like visiting a candy store, as there are so many options out there that it becomes difficult to decide which one to “try” first. While most are familiar with rental properties, which are real estate where some people invest in making money from tenants’ monthly payments, this is just one of several ways to generate income in real estate. (Ways to invest in real estate)
If you want to know the different ways to make money in real estate, in this article, we will analyze in-depth some of the best ways to invest your money in real estate. (Ways to invest in real estate)
We will also add all the pros and cons within each option to see which would be the best that goes with you to help you decide what type of investment is best for you.
To help you make the best decision, our friends at Proper have brought us some of the most popular ways to invest in real estate and generate substantial income. Here are ways to invest in real estate. Let’s hope it serves them!
Real Estate Investment Trusts
This occurs when one or a group of owners give their assets to be managed by other people, institutions, or companies. At the same time, these companies can invite other investors. One of the best known is called FIBRA or REIT in English, and they are listed on the stock exchange.
- Real estate investment trusts can be private or listed on major stock exchanges.
- This is a simple way to diversify your investment by asset class or geography.
- These trusts can specialize, for example, in casinos, agricultural land, offices, logistics centers, cell phone towers, housing, etc.
- It provides much greater liquidity to your investment, selling your stake more efficiently, especially if the trust is listed on a stock market.
- Depending on where you invest, you may risk losing many of the tax benefits that direct ownership offers.
- It is equivalent to owning a share of a company rather than investing in real estate, so the potential appreciation of the asset you buy was already captured when the trust was structured, and the retail prices were defined. Substantial changes in the market are required to generate a relevant capital gain.
- You lose the ability to use leverage to increase your reach and profitability.
Small multifamily property
This is when to buy between 2 to 3 houses, but they are independent units.
- Duplex, triplex, and quadruple properties are an excellent way to increase the scale of the investment and concentrate your efforts.
- Property management and maintenance can be more accessible when multiple tenants are next to each other.
- The risk of vacancy (time without rent, cash flow that does not arrive) is diluted between the various units.
- Not all banks will give you loans on multifamily rental properties or apply for a much higher initial.
- A limited exit strategy when selling to another investor usually requires the sale of the units independently.
Temporary or short-term rentals
These are properties rented for short periods on online travel platforms such as Booking.com.
- Temporary and holiday rentals can help you generate higher rents in specific periods, such as summer seasons or when there are high-demand events in the areas where they are located.
- Rental periods usually range from one night to several weeks, giving you flexibility if you use the property yourself.
- Operating costs are higher due to: higher tenant turnover, extended vacancy periods (days off), or the landlord’s payment of utilities.
- The management of the property is more intensive because the short-term rental is similar to the direction of a hospitality business, which requires a lot of time on your part or has a customer service that is usually more expensive than the traditional ones since it must include services such as recurring cleaning, laundry, bathroom and kitchen utensils, and attention to needs outside regular hours, etc.
- You are at greater risk of property damage and theft. While these platforms include insurance, the procedure for running them is usually bureaucratic and requires proof of damage to be sufficiently capable of assigning to the ongoing tenant.
Repair and sell real estate
These are properties in poor condition, and you take the opportunity to buy them at a reasonable price, repair them and then sell them at a margin. Also called “fix and flip.”
(Ways to invest in real estate)
- They have the potential to make a good amount of money in a short time.
- Multiple exit strategies sell them to an owner-occupier, an investor, or a turnkey rental property.
- In theory, it is the best option for investors with significant capital looking to work full-time in real estate in a specific market.
- A high-risk investment strategy requires correctly synchronizing the various associated components (market, agents, builders, owner, banks, sales strategy, etc.)
- It requires developing a trusted team to control that the repair budget does not explode and all planned profit is lost.
- Requires experience in the initial analysis of properties to plan the investment to be made correctly.
- It can be tough to sell the home at the market price, especially if there are new home developments in the area, which requires a substantially lower purchase value to justify the investments to be made plus the discount on the price to be delivered on the sale.
Crowdfunding occurs when many people contribute small amounts of money to invest in real estate, investing in various assets: properties that generate income, loans to real estate, association (purchase of equity) in real estate projects, etc.
- In theory, it is an excellent way to own (indirectly) a small part of an asset, such as a shopping mall, an office building, or a large apartment development project.
- Investors in collective funds earn income from quarterly distributions and a portion of the profits when the property is sold.
- The potential gains or losses of a crowdfunding investment will depend on the experience of the crowdfunding sponsor who finds and manages your project.
- It can be much riskier than other real estate investments, given that there are multiple forms of asymmetry in information (and knowledge) between the fundraiser and the investor, so it is critical to work with a trusted platform that analyzes and presents the risks of each investment and with experience in the real estate sector in particular.
(Ways to invest in real estate)