If you’ve ever had a landlord, you probably don’t want to be one: Receiving calls about oversized bugs and overflowing toilets does not appear to be the most glamorous job. But, when done correctly, real estate investing can be lucrative, if not flashy. It can help diversify your existing investment portfolio and provide an additional income stream. And many of the best real estate investments don’t necessitate attending to a tenant’s every whim.
The issue is that many new investors have no idea where or how to begin investing in real estate. Here are some of the best real estate investment opportunities for a Bay Area home buyer. ranging from low to high maintenance.
Make use of an online real estate investing platform
You’ll understand online real estate investing if you’re familiar with companies that connect borrowers to investors willing to lend them money for a variety of personal needs like a wedding or home renovation.
These platforms connect real estate developers with investors looking to finance projects with debt or equity. Investors expect to receive monthly or quarterly distributions in exchange for taking on significant risk and paying a fee to the platform. These, like many real estate investments, are speculative and illiquid. You can’t easily sell them like a stock.
The catch is that you may require money to make money. Many of these platforms are only available to accredited investors, who are defined by the Securities and Exchange Commission as having earned more than $200,000, $300,000 with a spouse in the previous two years or having a net worth of $1 million or more, excluding a primary residence.
REITs (Real Estate Investment Trusts) (REITs)
A real estate investment trust (REIT) is ideal for investors seeking portfolio exposure to real estate without committing to a traditional real estate transaction. A REIT is formed when a corporation (or trust) uses money from investors to buy and operate income properties. REITs, like any other stock, are traded on major exchanges.
To keep its REIT status, a corporation must pay out 90% of its taxable profits in dividends. By doing so, REITs avoid paying corporate income tax, whereas a regular company would be taxed on its profits and then have to decide whether or not to distribute its after-tax profits as dividends.
REITs, like regular dividend-paying stocks, are a solid investment for stock market investors looking for consistent income. In comparison to the aforementioned types of real estate investment, REITs provide investors with access to nonresidential investments, such as malls or office buildings, that are generally inaccessible to individual investors.
Furthermore, because they are exchange-traded trusts, REITs are extremely liquid. In other words, you won’t need a real estate agent as well as a title transfer to assist you in cashing out your investment. In practice, real estate investment trusts (REITs) are a more formalized version of a real estate investment group.
When researching REITs, investors should distinguish between equity REITs, which own buildings, and mortgage REITs, which provide real estate financing and dabble in mortgage-backed securities (MBS). Both provide real estate exposure, but the nature of that exposure differs. An equity REIT is more traditional in that it represents real estate ownership, whereas mortgage REITs focus on real estate mortgage financing income.
House flipping is only for those who have extensive experience in real estate valuation, marketing, and renovation. House flipping necessitates capital as well as the ability to perform or supervise repairs as needed.
This is real estate investing’s proverbial “wild side.” Home flippers are distinct from buy-and-hold investors, just as day traders are distinct from buy-and-hold investors. For example, real estate flippers frequently seek to profitably sell the undervalued properties they acquire in less than six months.
Flippers who are unable to quickly unload a property may find themselves in trouble because they typically do not keep enough uncommitted cash on hand to pay the mortgage on a property over the long term. This can lead to escalating losses.
Another type of flipper makes money by purchasing reasonably priced properties and adding value by renovating them. This can be a longer-term investment, as investors can only afford to take on one or two properties at a time.
Real Estate Investment Groups (REIGs)
REIGs is ideal for people who want to own rental real estate without the hassles of managing it. Investing in REITs necessitates a capital cushion as well as access to financing. These investment plans are small mutual funds that invest in rental real estate. In a typical real estate investment group, a company purchases or constructs a collection of apartment buildings or condos, and then allows investors to purchase them through the company, thereby joining the group.
An investor can own one or more self-contained living units, but the company running the investment group manages all of the units collectively, handling maintenance, advertising vacancies, and interviewing tenants. The company takes a percentage of the monthly rent in exchange for performing these management tasks.
A typical real estate investment group lease is in the name of the investor, and all of the units pool a portion of the rent to protect against vacancies. As a result, even if your unit is empty, you will receive some income. As long as the vacancy rate for the pooled units does not rise too high, the costs should be covered.