Investing in real estate requires time, patience, and most importantly, cash. You probably shouldn’t invest in real estate until you have an emergency fund, no debts, and are automatically depositing into a retirement account. If you have enough cash to purchase a multi-unit property, living in one unit and renting out the others can be a great way to start generating passive income. If you don’t have the cash to buy a property, try investing in a real estate investment trust (REIT). You’ll get exposure to the real estate market and be compensated in the form of dividends. Real estate can be a very profitable investment, but it requires a significant time commitment, patience, and most importantly, cash. Although novice investors can choose to enter real estate, they can find substantial returns in large investments – for example, buying and managing multi-unit properties or renovating single-family homes and selling them for profit. Here are several ways to enter real estate investment: How to Make Money in Real Estate
- First, Get Your Finances in Order
Before making any type of real estate investment, organize the rest of your financial house – establish an emergency fund, pay off consumer debts, and keep increasing your retirement savings. Real estate is an especially expensive investment, so you need to have cash on hand for the down payment (or to buy the property outright) and reserves for when and if repairs are needed. This should be completely separate from your regular emergency fund.
- Try Investing in Real Estate Investment Trusts
If you want to get involved in real estate, investing in a real estate investment trust (REIT) allows you to access the market without the time and cost of buying your own property. Equity REITs are the most common type of REIT and allow investors to pool their money to buy, develop, and manage real estate. REITs focus on specific types of real estate, such as apartment complexes, hospitals, hotels, or shopping centers. Ninety percent of the annual income (often in the form of rental income) is returned to investors as dividends. If you want to keep your investment liquid, stick with publicly traded REITs. If you’re willing to put some money aside for a potentially larger return, consider investing in the private real estate market through an online broker. Online brokers can help you invest in real estate projects across the United States without the need for physical management. Investors can select a portfolio based on their goals (supplemental income, balanced investment, or long-term growth) and earn dividends quarterly. Practitioners of online brokers say their platforms are best for investors with a time horizon of at least five years.
- Understand the Local Housing Market
If you do plan to buy your own investment property, understand the local market first, or better yet, stay close to home. Talk to real estate agents and locals; find out who lives in the area, who is moving to the area and why; and analyze the price history. In short: do your research. - Build a Local Team
Dana Bull, a real estate agent and investor in Boston, says successful real estate investment is as much about who you know as what you know. “I think if you really want to get into real estate investing, you need to focus on building relationships with people because that’s what real estate is, it’s a relationship-based business,” Bull previously told Business Insider. She says build a team of real estate agents, contractors, lawyers, and accountants who can all help your business run smoothly. - Keep It Simple
A simple strategy can go a long way in real estate investment. If your goal is to generate passive income, don’t be fooled into thinking you need to be bold to achieve it. Early retiree and real estate investor at CoachCarson.com, Chad Carson, says it’s best to start small and keep expenses low. “In my opinion, the game of rental properties is ultimately to get it out of debt, get it out of debt, so you have a low-risk, high-income investment that allows you to go to Ecuador and do whatever you’re going to do with your life – quit your job or have a little independence to do something else,” he said on the Mad Fientist podcast.s