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The Different Types Of Real Estate Investing

When you say “real estate investing”, most people think it’s all about buying a property and renting it out as a landlord. However, the truth is that there are other forms of real estate investment that you can venture into. including buying a property and renting it out, fix and flips, REITs, multi-unit residential and commercial properties.

House flipping - Fix and Flips

House flipping was very popular at the turn of this century. How does it work? You buy a property for cheap and sell it for high. The key to making a lot of money with this venture is to find a rundown property that you can buy at a really cheap price, like $50,000, and sell it for at least $150,000 after renovation and repairs. If you buy a house for $50,000 and sell it for only $55,000, it’s better to just go and find a job — if that is the case, see REITs below...

House flipping is expensive and time-consuming. While it’s obvious you need to have the money to buy a property, you need to have a keen eye for picking the right property at the right location and at the right price. Also, in order to make a great profit, you need to have so-called sweat equity.

The people who can make the most money from flipping houses are carpenters, plumbers and professional builders. As a matter of fact, many of these skilled professionals flip houses on the side when the market conditions are right. If you need to hire a professional to do repairs, it’s going to reduce your margin of profit but with the right contractors, you can move quickly and do quite well.

Buying a Property and Renting it out

When looking for the right property to rent out  you will want to make sure the rents you can charge will cover the mortgage payment. So working backwards using a mortgage calculator you can compare this to average rents in the area. This tool might help you get a gauge of this: Rentometer.com 

Once you have this information in hand you can start to analyze if properties can be cash flowed. If the rents are higher than your mortgage and any other expenses (HOAs, insurance, taxes etc.) then you may have found yourself a great rental property! This can be a great way to build wealth over the years but does require being a landlord which some people don't enjoy. If you do decide to manage the property yourself (recommended) make sure to do background checks on your tenants as deadbeat renters can be a major issue. We learned this lesson the hard way! Also make sure to have a really good lease contract with your tenants which covers all the bases. Another alternative is to hire a property management company to do all this for you. However, you will need to factor in that cost into your cash flow numbers.

Real Estate Investment Trust (REIT)

REITs are the mutual funds of real estate property. If you own REIT shares, you own property but you don’t need to deal with the problems and challenges of being a landlord. The company offering the REIT buys or builds some apartment blocks and other real estate property, after which they allow traders to purchase shares, thus sharing the ownership. You as the investor are part owner to a property, but it’s the company offering the REIT that handles the maintenance of the property as well as its sales marketing. In addition, the company also manages the tenants

You will find several types of REITs, however, in the traditional model, the lease contract is in the name of the investor title. The quality of an REIT depends on the quality of the company offering it. Theoretically, REIT is a safe method of investing in real estate, however, REIT companies are susceptible to exactly the same fees and costs that haunt the mutual fund industry.

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