Real Estate Investing: Concept and Benefits for Beginners
Whenever most people think of real estate investing, the first thing that probably comes to mind is property investment. In other words, they group the words “real estate” and “investment” together and assume that investing in real estate means owning a particular tangible asset like a commercial building or residential property.
However, real estate as an asset class offers other options for beginner investors who aren’t willing or able to own and manage physical properties. Real estate investment trusts, or REITs, are a popular passive investment option and offer an easy way for beginners to get started in real estate investing. Additionally, other online platforms like Groundfloor have emerged that give everyday investors even more ways to participate in real estate investments on any budget.
How Can You Make Money Through Real Estate Investing?
Investing in real estate is a great way to make money and has traditionally proven very lucrative for those who participate. Real estate investing helps you earn money in two main ways: through value appreciation and through regular cash flow income.
Value Appreciation
Value appreciation in real estate signifies the rise in the value of a particular property. This primarily happens due to changes in the real estate industry.
For instance, suppose a mall or a metro station gets built near a specific building. In that case, the overall property value is bound to increase in response to the increased population in the area. Another scenario is the renovation or modification of a property to make it more appealing to potential buyers. In both instances, you will see the property’s value appreciate over time, which translates to a good real estate investment.
Cash Flow Income
Cash flow income generally is associated with the ownership of a particular building that is then rented out to tenants. In this way, you can receive regular monthly income (rent) from your property as its value appreciates over time.
This type of cash flow can also come in from various sources apart from residential renters. For example, retail or office buildings and storage units can also fall under this category.
Rental properties can require a lot of time and energy to maintain, so be sure you are prepared to actively manage your property if you decide to become a landlord. If you prefer to be less involved in the day-to-day operations of your rental property, hiring a property manager might be a good idea to establish a more passive source of rental income.
How to Invest in Real Estate for Beginners
While getting started in the real estate investing space can be daunting for beginner investors, there are several ways to break into the industry without needing a ton of real estate knowledge or experience up front. Some good beginner-friendly investing strategies include investing in REITs, real estate wholesaling, having rental properties, investing real estate investment groups, and participating in online real estate platforms.
REIT Investing
For those who are interested in real estate investment opportunities but who can’t or don’t want to purchase properties themselves, investing in real estate investment trusts (REITs) are a good alternative. A REIT refers to a company or business that owns, manages, or funds real estate assets that generate income. As with stocks, investors are able to purchase shares in the REIT and earn dividends without the need for buying, handling, and financing the related properties themselves.
Thus, REITs ensure a steady and continuous income stream for investors. REIT investment opportunities can be found for almost all property types. It can include medical facilities, retail centers, warehouses, data centers, cell towers, apartment buildings, warehouses, offices, and more.
Investing in real estate investment trusts provides several other benefits for beginner investors. REIT investments can provide valuable diversification options for investors since REITs can include a variety of real estate types in many different areas. Additionally, REITs typically provide valuable data and analytical information to their investors, which means prospective investors can do their own due diligence in determining whether or not to invest.
Real Estate Wholesaling
Real estate wholesaling refers to the strategy of acting as the middleman between sellers and buyers. Wholesalers track down properties under market value and assign end buyers to purchase the contract, adding a fee at the end for their services.
This is a great strategy for beginners to get started in real estate investing because it does not require significant capital to get started, since wholesalers never actually own the properties they find. Real estate wholesaling can help new investors build a reliable network of real estate professionals and form a strong understanding of the real estate market they are in.
Rental Properties
Buying rental properties can be a great strategy for generating a regular monthly income stream. If you have the time and energy to manage a property and tenants, this can be a valuable way to earn consistent income. Even if you aren’t ready to be a full-time landlord, you can still capitalize on rental properties by outsourcing duties to a property manager. Additionally, since real estate tends to appreciate in value over time, owning rental properties can be a great way to ensure you are getting a good return on your investment in the future.
Real Estate Investment Groups
Real Estate Investment Groups (REIGs) are businesses that focus on investing in real estate. REIGs involve pooling together investor capital to buy multi-unit housing and commercial properties without the hassle of managing and running them.
REIGs are akin to mutual funds that remain associated with rental property investment. Generally, a company purchases or builds properties and buildings such as condos or several apartment complexes. Then, the company opens them up to investors to buy shares in the assets. The company owning the property handles the various aspects and elements of tenant interview, vacancy advertisement, maintenance, unit handling, etc. As a result, REIGs can be useful in helping beginners learn the ropes of commercial real estate investing.
Online Real Estate Platforms
Online real estate platforms, often referred to as real estate crowdfunding, connect real estate developers looking for financing to investors interested in putting their funds to work. While some online real estate platforms require significant investment minimums, there are others where the minimum amount to invest is low, making them a great choice for investors who don’t have a lot of money. Online real estate platforms can also help you diversify your investments geographically, as many platforms offer opportunities to invest in real estate projects around the country.
Keep in mind, however, that not all online real estate platforms are the same. Some platforms offer investments into specific projects, while others offer investments into a portfolio of projects. Additionally, some platforms require investors to pay fees to participate and some have lockup periods during which time your funds are not liquid. It is important to have an understanding of all of these details before choosing to invest on an online platform.
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