Recent studies shows that most Millennials who want to invest wish to do so through real estate. It makes sense, too. Real estate is a solid, tangible investment that can be improved by your own work through the years.
It's provided a reliable way to gain income, and continues to rise in price through the decades. If you choose to be a landlord, then you will be able to expect your properties to give you a fixed monthly income without the need to work too much to do so.
If you have good tenants, you also will be able to expect your tenants to take good care of your property for you. However, not all of us have the time or experience to invest in real estate as a landlord.
Want to get in on the real estate game, but don't have the experience to be a good landlord? Here are some of the better options for would-be real estate investors, and what they could expect from each route.
Why avoid landlording?
Most people who want to invest in real estate want to be landlords, but that's not always a good idea. As much as it may seem like landlords don't do much aside from collect rent from tenants, it's really not an easy gig.
Repairs are a huge issue people don't really think about. If anything goes wrong with the apartment in question, it will be the landlord's job to fix it. Moreover, the tenant is usually not going to be held liable for repairs. Depending on how unlucky you are, this issue alone could end up turning your investment into a loss.
Additionally, finding tenants that aren't going to be problematic is much more difficult than you'd believe. A single bad tenant can wreck a good apartment, and cause serious damage to your reputation.
Simply put, there are a lot of real estate mistakes you can make that could potentially end your career as an investor.
If you aren't good at getting a read on people, then you might want to avoid landlording. There are other ways you can profit off real estate without the work of a landlord.
Fixing and flipping homes is one of the more popular ways to invest in real estate without being a landlord. This route will involve you buying homes under their standard value, fixing them or improving your home, then selling the house you buy at a profit.
People who would be great at fixing and flipping homes are individuals with ties to construction companies, realtors, and who have a good knack for marketing.
You will need to find homes to buy up at a discount in order for this to work. However, if you can find them, chances are high that you will be able to make a serious profit.
Fix and Flipping Homes: The Pitfalls
Fixing and flipping homes isn't easy, and it's definitely not something that a single person should try to do on their own. You will need to have a very large network of people in place in order to successfully flip a home, and you will have to find reliable groups before you attempt it. These will include:
- Lenders. You may need a specialized house flipping loan in order to do this. Some crowdfunding lenders exist that can make this an easier project.
- Construction Crews. This is a must. If you don't have a reliable crew willing to work affordably, you're done before you start.
- Lawyers, Expeditors, and Inspectors. You'd be shocked at how much red tape can be involved in this process.
- Realtors. Realtors will make selling it easier.
Along with a lot of startup costs, people who fix and flip may also have to think about the local real estate market. If the real estate market crashes mid-project, you may end up owing money on the house while also being unable to find a buyer.
This is a very involved way to invest in real estate, but at least you don't have to deal with tenants. It's still a better option for many people out there that are okay with having a single, large lump sum of income from every project they undertake.
What if you love the idea of flipping homes, but really don't want to have to do all the work of networking with contractors, finding a house at a discount, and dealing with all the red tape? Well, you have another way to invest in real estate without doing all that work!
People who want to flip homes will often need money to do so. Certain crowdfunding platforms, such as Patch of Land, will allow you to act as a private lender for fixing and flipping projects.
You choose the projects, they do the work, and you reap the rewards of interest payments.
Real Estate Lending: The Pitfalls
Just like with any other form of investment, there's going to be a certain amount of risk involved in real estate crowdfunding.
Projects fail, and sometimes, people bail. If this is the route you take, you may find yourself realizing that many moments where people invest in real estate really aren't that profitable at all.
REITs, also known as Real Estate Investment Trusts, are some of the most reliable and low-effort ways to invest in real estate. REITs are giant funds that are totally dedicated to funding major projects and companies that are run by real estate professionals.
These are trusts that allow you to invest in major property management companies, own partial shares of an apartment building, and more—all without having to lift your finger. When the companies that run REITs collect rent, they are legally require to pay off at least 90 percent of their taxable income to shareholders.
In other words, you get rent payments, minus the work.
Some REITs are publicly traded, while others are private. Either way, they are an effortless way to get the real estate shares you want without needing the experience landlords or contractors have.
REITs: The Pitfalls
The biggest issue with REITs is the fact that they don't offer much control. With your own property, you get to handpick the improvements, the neighborhood, and the renters. REITs don't allow for any of that.
It can be hard to find a REIT that maximizes returns, but it is doable. Additionally, depending on which REIT you choose to invest in, cost can be prohibitive. However, some will allow you to invest for as little as $500.
If you want to invest in real estate without actuallyinvesting in real estate, then the stock market offers up quite a few long- and short-term options for you. One good way to get some real estate returns is to invest in stocks dealing with real estate.
Real estate stocks are often issued out by developers who have investment properties that need funding. These stocks offer up good returns and typically also pay dividends.
Real Estate Stocks: The Pitfalls
The main pitfalls of real estate stocks are similar to REITs. You don't really have a say in which properties you're investing in, how they're being managed, or who gets to live in them. This is okay for the most part, since you're in it for profit.
However, stocks also come with one other pitfall. Since they are tied to the stock market pretty heavily, they also have a tendency to crash during a bear market.
If you're still into stocks, but don't have the money to spend on single-company stocks, you may be better served by real estate ETFs. What are ETFs, you ask? Well, they're one of the easiest ways to start investing in the stock market—and they also act as prefabricated portfolios around a specific theme.
Depending on which ETF you invest in, a real estate ETF can feature construction companies, real estate trusts, or just companies that offer mortgages.
Real Estate ETFs: The Pitfalls
The biggest issue with ETFs, aside from the cost they may have associated with running them, is the fact that they tend to have lower returns than other forms of investments on this list. So, if you're looking for ways to invest in real estate that involve super-high profits, you might want to rethink this route.