Real estate is considered one of, if not, the best investment you can make. Housing has been very consistent throughout history, more so than any other type of investment, and outpaces inflation and the stock market.
However, many people don’t invest in real estate because they assume it’s complex and requires a massive down payment to get started. It turns out that this is entirely false! Real estate can be pretty easy to get into!
Whether you’re looking to go the traditional route of buying and renting out properties, renting out rooms, or buying multifamily units the same way you do stocks, there’s no shortage of investment opportunities for which you can take advantage.
In this article, we’ll go over seven simple ways that you can become a real estate investor.
1. House Hacking
Do you have an extra room, a remodeled basement, or live in a duplex? One of the easiest ways to learn the basics of real estate investing is by renting out part of your home, or what’s better known as “house hacking.” Because you already own the rental property, you can do this at little-to-no cost to you!
Since you will be living with them (or at least close to them), thorough tenant screening is a must. You’ll have to research how much you should charge based on your space, the rental market, and your current mortgage payment. Also, account for hidden costs, like renter’s insurance and utility bills. Depending on your space, you may have to renovate it before it’s tenant-ready.
By renting part of your home, you’ll enjoy passive income and gain experience as a landlord that can be invaluable if you decide to make larger investments.
2. Long-Term Rentals
Many real estate investors get their start by renting out to tenants in long-term rentals. Most of the time, the property is a single-family home, which means only one tenant (or family) lives in them, but there are also plenty of multifamily properties (more than one tenant) that you can get started with.
Investing in long-term rental properties can offer several advantages, including tax benefits, financing options, and good cash flow.
From a tax perspective, rental property investors can deduct expenses such as property taxes, mortgage interest, and repairs, reducing their taxable income. This can result in significant savings come tax season. Furthermore, financing options such as traditional mortgages, private loans, and partnerships can make it easier for investors to acquire these types of rental properties due to how common they are.
Finally, rental properties can provide steady cash flow from monthly rent payments, allowing investors to build wealth over time and create a passive income stream. Long-term rentals are, in many ways, easier to manage and will give you reliable income compared to short-term rentals and other investment types.
3. Short-Term Rentals
Short-term rentals (a.k.a. vacation rentals) are properties that guests rent out on a nightly basis instead of monthly or annually. With sites like Airbnb and VRBO, real estate investors can list their properties, optimize pricing, schedule bookings, and enjoy an additional income stream. Many investors who dip their toes in the short-term rental space turn it into their full-time jobs.
Investing in short-term rentals can offer several benefits. One of the primary advantages is the potential for higher rental income compared to long-term rentals. Since short-term rentals are typically rented out for a few nights or weeks, they can command higher rates per night, resulting in greater cash flow for investors. Additionally, short-term rentals offer more flexibility in terms of occupancy, as the property can be rented out for a portion of the year and used for personal use during the rest of the time. This can be particularly beneficial for vacation properties or second homes.
Finally, short-term rentals can provide tax advantages, such as deductions for expenses related to the property and depreciation, which can result in lower taxable income.
However, investing in short-term rentals can have its drawbacks, and one of the most significant disadvantages is higher maintenance costs. Unlike long-term rentals, short-term rentals require more frequent cleaning, repairs, and replacements, which can increase the overall maintenance expenses. This also means that short-term rentals tend to have more wear and tear due to the higher turnover rates, which of course, increases your long-term maintenance costs.
Another potential disadvantage of short-term rentals is that they are often subject to seasonality, meaning that demand can vary significantly depending on the time of year and location. This can make it more challenging to predict cash flow and occupancy rates.
Overall, while short-term rentals can offer several advantages for savvy investors, it’s important to consider these potential downsides carefully before investing in this type of real estate.
If you’re not into short-term rentals but want better cash flow than long-term rentals, medium-term rentals could be a good middle-ground. They’re more profitable than long-term rentals and don’t share the same restrictions or time commitments some short-term rental owners experience. Medium-term tenants live in your properties for 30+ days but less than a year. These renters are typically traveling nurses, business professionals, and digital nomads. Plus, since they’re laying down (temporary) roots, they usually respect your property.
4. Real Estate Crowdfunding
Real estate crowdfunding involves many people contributing funds to raise a ton of money so that they can buy real estate. Today, it’s one of the most popular investment options in real estate. The global real estate crowdfunding market grew to 10.78 billion in 2021 and shows no sign of slowing down.
Real estate crowdfunding has plenty of benefits. Here are a few to consider:
- Access to new properties: Not too long ago, access to many types of commercial real estate or niche residential properties like luxury high-rises was limited to just a few wealthy, well-connected investors. Crowdfunding allows more people to include these properties in their investment portfolios.
- Portfolio diversification: Owning property can be like owning stocks. A single unit or stock can make or lose you a lot of money. However, if you spread your funds across multiple investments (much like you do with a mutual fund), you’re reducing risk.
- Passive income: Crowdfunding opportunities are operated by a fund manager or developer. They manage the property and pay dividends based on your contract’s terms and conditions. Beyond your initial research, you’re not required to do any extra work.
- Affordability: Many real estate crowdfunding platforms have low buy-ins. While some require a minimum five-figure investment, other platforms, like Fundrise, let you start with just $10.
While crowdfunding is great for passive investors, it’s not for anyone looking to make a quick buck. Your funds will be tied-up for extended periods (e.g., Fundrise recommends a minimum time horizon of five years). You’re also not in control of your investments and may be charged management and advisory fees.
5. Real Estate Investment Trusts (REITs)
REITs are another passive, affordable way to break into real estate investing. REITs are companies that finance, own, or operate properties and other forms of income-producing real estate. Many REITs focus on specific property types, such as residential, industrial, multi-use, retail, and office, and can be bought and sold through brokerage accounts.
Collectively, REITs own over $3.5 trillion in gross real estate assets in the U.S. alone. More than 200 publicly traded REITs are on the market today, most of which trade for under $100. They must also distribute 90% of their earnings as dividends to maintain their tax-advantaged status, which means more money in your pocket.
REITs can offer several benefits. One of the primary advantages is that REITs are highly liquid, meaning that investors can buy and sell shares easily on major stock exchanges, providing greater flexibility and access to capital. REITs also offer attractive dividend yields, providing a reliable source of income for investors.
However, investing in REITs also has some drawbacks to consider. One potential disadvantage is that REITs can be subject to market volatility more potently than traditional real estate investments because they work off of share prices, which can fluctuate significantly. REITs are also not immune to interest rates, meaning that rising interest rates can lead to a decrease in the value of the underlying real estate assets.
6. Become Part of a Team
Successful real estate investors seldom work alone—and neither should you! Are you an investor-friendly agent, a general contractor, a house cleaner, a marketing expert, or simply have extra capital and an eagerness to learn? Join a team of other experts and invest together as you fix and flip houses or try the BRRRR method. Working with others allows you to ask questions and gain on-the-job experience.
After teaming up with experts on a few projects, you may be ready to spearhead your own fix-and-flip and become an experienced investor. If you ever have any questions about a project, feel free to ask our forums!
7. Real Estate Investing With the SMARTER Method
There are so many ways to invest in real estate. No matter your preference or where you are in your investment journey, BiggerPockets’ SMARTER Real Estate Investing System can help you navigate your path to financial freedom.
SMARTER is an integrated, lifecycle-based resource designed to help you grow your educational ecosystem and curate your professional network. SMARTER stands for:
- Strategy: Why are you investing, and what are your long-term goals? Answering these questions will help you determine how you should invest.
- Market: Find a strong investment market based on your investment strategy.
- Acquisition: Discover how to find, analyze, and fund the best deal for you.
- Rehab/Rent: Dive into the ideal make-ready process and prepare your property for tenants.
- Tracking: Find the best platforms and tools to manage your cash flow, work orders, expenses, and more.
- Exit: Explore how to successfully exit or exchange your property and maximize your investment potential.
- Repeat: Repeat what’s working, learn from what’s not, and continue to learn and grow.
As a SMARTER investor, you will discover many of the simple ways you can become a real estate investor and figure out which method(s) should work best for you. Are you ready to work SMARTER, not harder?
Conclusion
Real estate investing has evolved a lot, especially in the digital age. Every day people have access to more investment opportunities than ever before, and why the sheer number of ways you can invest in real estate can be daunting, you should take a glass-half-full approach. Rising interest rates and inflation aside, there’s never been a better time to become a real estate investor. Get started today!
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
