Have you considered real estate investing but hesitated over the decision for various reasons?
Maybe you don’t know where to start and are afraid of putting your hard-earned money into something you don’t understand. Or you think you need a ton of cash to invest in real estate. Or perhaps you have some money set aside, but you are not sure if investing in real estate is a wise choice with the coronavirus pandemic.
If any of the above describes your situation, keep reading to find the answers to your questions.
The Advantage of Real Estate Investing
Firstly, why should you invest in real estate?
Diversification
Investing in real estate offers investors more opportunities for diversification than any other investment type. Real estate does not experience the same level of volatility that stocks are subject to. Unlike stocks, real estate’s value does not correlate as sharply to events in the economic and political areas.
Leverage
Real estate investors can use leverage to buy properties. By paying 5%-25% of the purchase price of a home, an investor acquires the asset. They can start earning income from the home as if they paid 100% of its purchase price. Furthermore, they can use that asset as a launching pad to acquire other properties.
Range of Investment Strategies
Real estate investors have a choice of different investment strategies. They can choose to be hands-on or passive. They can invest in properties around their location or in faraway places they have never been to. Investors can also invest a few thousand dollars as part of a group or buy a house or condo independently.
Why The Pandemic is an Opportunity for Real Estate Investors
There are two ways people respond to uncertainty; they expand or shrink. Naturally, when events like the current pandemic occur, most people hold onto their money. Demand dries up in many areas of the economy, and prices fall. This fall in prices creates opportunities for savvy investors to grow their portfolios.
Due to the coronavirus pandemic, median house values are predicted to fall for the first time in eight years. Additionally, although most lenders are tightening their mortgage-qualification criteria, they are also offering very low rates. The combination of low rates and falling home prices means that smart property investors can come out of this pandemic richer.
Real Estate Investment Strategies to Consider
What is the best way to get started as a real estate investor?
Luckily for most beginner investors, real estate investing does not need you to have tons of money and years of experience. You can choose your strategy to reflect how much capital and experience you have. You may also choose if you want to be very involved in the management of your assets or if you want a more laid-back approach.
Here are the different ways you can become a real estate investor.
Rental Properties
Becoming a landlord is what most people mean when they talk about investing in real estate.
Pros:
- You have the option to acquire the property using leverage
- Regular income via rent and opportunities for the asset to appreciate in value
- Take advantage of several tax-deductible expenses
Cons
- You have to deal with tenants
- You must oversee the physical maintenance of the property
- The property may stay vacant for periods of time
However, most of the problems with owning a rental property can be avoided if you hire a property manager, like Real Property Management Trailhead. Be sure to check a few property management companies. You want to hire a skillful property manager, someone who’ll make sure those problems are taken care of.
Real Estate Investment Trusts (REITs)
A real estate investment trust (REIT) uses investors’ money to buy real estate and distributes the profit from those assets to their shareholders every year. It is similar to investing in stocks.
Pros
- You can build a real estate portfolio without the hassle of buying and managing property
- Offers regular income in the form of dividends
- Highly liquid because it is exchange-traded
Cons
- No access to leverage when buying this asset
Real Estate Investment Groups (REIGs)
A real estate investment group (REIGs) lets you own rental property without the stress of finding the right rental property or operating it. REIGs are small mutual funds that invest in real estate – to buy or build apartment blocks or condos. Investors can buy those apartments or condos when they join the group.
Pros
- The REIGs manage the property
- Regular income via rent and opportunities for value appreciation
Cons
- The property may stay vacant
- The same fees as mutual funds
- Risk of unscrupulous management
House Flipping
This is a high-risk but potentially profitable real estate investment strategy. House flippers buy a house for the sole purpose of selling it after a few months. They may improve it or sell it in the same condition as they bought it. This strategy requires lots of experience in real estate valuation, property renovation, and marketing. Investors do need to have a lot of cash on standby.
Pros
- The investor’s capital is only tied up for a short time
- There are opportunities for quick returns
Cons
- Demands a ton of experience
- Highly vulnerable to price trends in the market
Finally, Online Real Estate Platforms offer another path to invest in real estate. Although worth investigating, this is a relatively new option.
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