Simple Ways To Invest in Real Estate

Source: Money — 

Real estate investing is a great way to make extra money and build wealth over time.

Although the real estate market might seem complex, you can choose your time horizon and how much effort you want to put in. Read on to find out how to invest in real estate, plus some key considerations on how to make a good investment decision.

What are the easiest ways to invest in real estate?

If you’re wondering how you can invest in real estate, you’ve come to the right place. Below, you will learn more about:

• Real Estate Investment Groups (REIGs)

• Real Estate Investment Trusts (REITs)

• Real estate crowdfunding platforms

• House-flipping investments

• Rental homes

• Rental units

Without further ado, here are some of the top ways you can begin investing in real estate regardless of your budget.

Real Estate Investment Groups (REIGs)

A real estate investment group, or REIG, is a business that engages in real estate transactions and leasing. You can have family homes, apartment rentals, condos and commercial real estate in an REIG investment portfolio.

Getting involved with an REIG means working with other real estate investors. There is no limit to how many shareholders or partners can join an REIG. Depending on its size, an REIG could manage a few — or many — real estate properties. When investors pool more capital together, it opens up more attractive opportunities.

REIGs are ideal for high net-worth individuals who can dedicate a large portion of their wealth toward real estate opportunities. The returns can be good — it will vary depending on strategy, but there are also potential downsides.

REIGs are highly illiquid, meaning you can’t easily access the money you invest. It will also take time to find an REIG with a solid track record of good management that matches your investment property goals.

Fees can also eat into an investor’s bottom line, and the distributed profits can be less than expected in certain cases. The Securities and Exchange Commission (SEC) does not regulate REIGs, so this type of investment is best for those with real estate experience.

Large REIG investors can contribute several million dollars to pooled capital, but there are opportunities where investors can invest smaller amounts of capital. Most guidelines for smaller REIGs suggest an initial investment of between $5,000 and $50,000.

Real Estate Investment Trusts (REITs)

What is an REIT? REITs are companies that own, manage and finance real estate properties.

The main difference between REITs and other real estate investments is that REITs are highly liquid. A REIT can be bought and sold on the stock market and traded in the same way as mutual funds or individual stocks. You can simply log into your brokerage and choose the REIT you want to invest in. After that, you can buy and sell whenever you like.

REITs usually focus on a specific area, such as commercial buildings in central locations, data center operations or wind farms, for example. As such, you can choose whichever type of exposure best suits your risk tolerance. You also get full access to existing and historical finances that publicly traded companies must publish so that you can get a reasonable understanding of valuation, risks and its management’s track record.

They can also act as a solid entry point for investors who want to start investing in commercial real estate at a relatively low cost.

REITs are probably one of the best ways to get exposure to the real estate sector if you intend to invest a smaller sum. In fact, returns from REITs can be higher than other forms of real estate investment.

REITs, on average, have produced an annual return of 11.8% when taking growth and dividends into account, whereas commercial properties and residential properties have typically yielded lower amounts — 9.5% and 10.6%, respectively.

One factor you should note, however, is that short-term trading of REITs could result in having to pay higher capital gains tax.