Stock markets have been disappointing investors for over a decade now. Most investors are now turning towards real estate to make their money grow faster. However, investing in real estate is not as simple as investing in stocks and bonds. There are lots of complications involved; besides, as investments are huge, you need to choose the property carefully to make sure it turns out to be a lucrative one. Here we discuss various ways through which you can invest in real estate and make big gains.
Buy Property
Buying property directly is the most natural and traditional way of investing in real estate. You can buy a residential or commercial property, rent it out then sell it when market is good or whenever you require. Some investors choose to pool their resources to form real estate investment groups and buy bigger properties.
If you prefer this method of investing, you can get help on real estate listing websites such as PropertyCluster.com. The site offers an extensive listing of residential and commercial properties on sale across the United States. You can search for properties with your specific criteria and get a list of the ones that meet your requirements.
Real Estate Syndication
In this method a group leader, called a 'syndicator', chooses projects and forms groups of investors interested in parking their resources on such projects. In this case, an investor may own individual titles for the property, or they may hold partial shares. Making investment in real estate syndication is complicated, and you must understand the implications and legal matters clearly before investing. Commissions and fees charged by syndicators are high, so one must be careful when choosing this investment option.
Real Estate Investment Trusts (REITs)
People who can't resist their passion for investing in stocks will be attracted to this option. A REIT or Real Estate Investment Trust functions as an entity that purchases real property with the help of money invested by shareholders. Just like other stocks, REITs can be purchased and sold on all major stock exchanges. However, a REIT is bound to pay 90% of its income and profits to shareholders. This way a REIT does not have to pay any tax, as the liability is passed to shareholders in the form of dividends and distribution. A key advantage of choosing this investment method is that REITs let investors invest in commercial properties like office buildings and malls which are highly liquid as compared to residential properties.
Real Estate Investment Groups
Such groups operate like small mutual funds for real estate rental properties. The real estate investment groups are an ideal investment option for people interested in owning a rental property but wanting to avoid the hassles associated with being a landlord. Under this option, a company will purchase or build condos or apartment blocks and let investors purchase them through the company. An investor thereby joins the group. Through this investment option, an investor can own one or several units, while the onus of maintaining the property and finding a tenant will rest with the company operating the group. Though it is a safe way to get into real estate investing, you need to be aware of the hefty fees charged by the companies. Also, you need to research to verify the quality of service offered by the investment group.
Real Estate Trading
Trading is the riskier side of investing in real estate. Just like day traders in the stock market who buy and quickly sell stocks, real estate traders buy property with the intent of selling it in a matter of 3-4 months with a profitable return. Property 'flippers', as they are called, prefer properties that are undervalued or are in a hot market. Such investors also avoid properties that require major renovations. Such types of investments are risky because if a property does not get unloaded as planned, an investor may be in trouble. Such investors usually do not keep enough cash to pay mortgages for the long term. There is also another type of property flipper that buys a property at a reasonable price, renovates it to increase its value and then sells it off at a profit. This is comparatively a longer term investment and an investor will be forced to wait before he is able to buy another property.
A great advantage of investing in real estate is that it allows you leverage. Unlike the stock market where you have to pay the entire value of the stock upfront, in real estate you can own and control a property by just paying a fraction of the cost from your pocket by taking mortgage. While you are at most required to pay 25% of the total cost of the property upfront, in some mortgages you can pay just 5% of the value. Mortgages encourage people interested in investing for the purpose of renting or trading. They can take a second mortgage on the property and get cash to pay the down payments on two or more additional properties. While flippers can sell off the property and gain profits, landlords can pay the mortgage out of the rent. Thus, leveraging allows real estate investors to enjoy a property by just paying a portion of its total value.
Summary: We have seen that there are many ways through which you can invest in real estate. Though there is a possibility of making huge gains in real estate investments, there are several risks as well. It is advisable to understand the implications of each choice before choosing any investment method.
Source: PropertyCluster.com
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