You’ve heard it time and time again, “Real estate is the best investment you can make.” But, for those of us who don’t have millions of dollars in our bank accounts, investing in real estate can feel like a distant dream. I mean, how am I supposed to buy an apartment building with a couple of thousands of dollars? Unfortunately, you can’t, but there are still ways that you can start investing in real estate and generating some serious returns.
Forget about crypto, stocks, NFTs, or whatever you got your money in right now. Let’s talk about the ways that you can start making some serious dough off of real estate today. These are 5 easy ways to start investing in real estate! Let’s go!
#1: Invest In REITs – Mutual Funds for Real Estate
So, you probably won’t become a real estate tycoon overnight and it’s really tough to get to the point where you’re managing and generating income from several investment properties. But, guess what, if you have an investment account with Vanguard or Fidelity or even Robinhood, you can still get in on the action. That’s right, I’m talking about REITs!
For those of you who are unaware of what a REIT is, it stands for “Real Estate Investment Trust,” and it basically operates on the same principle as a mutual fund. For those of you who are unaware of what a mutual fund is, it’s basically a company that takes money from a big pool of investors and invests it in a diversified portfolio of securities like stocks and ETFs and bonds. A REIT does basically the same thing, but with real estate investments.
So, basically, the REIT takes all the money it gets from investors and uses it to invest in real estate projects and properties all over the world. If those investments generate returns, then those returns get redistributed to the investors. In that way, investing in a REIT is a good way to make small investments in a large number of real estate projects. And with real estate being such a solid investment in general, it’s no wonder that REITs have become a super popular investment vehicle recently.
Now, there are several types of REITs that you should be aware of. There are public and private REITs. But, if you’re new to the game, you should probably focus on the publicly-traded REITs, which are listed on the major stock exchanges and can be invested in right through your Robinhood app or Fidelity account, just like a stock.
Some pretty popular REITs these days are American Tower (AMT) and Equity LifeStyle Properties (ELS), so go look those up and see if they look like a good investment for you! There are also some REITs, called equity REITs, that focus more heavily on rental income. On the other hand, there are REITs, known as mortgage REITs, that focus on interest income from mortgages. So, depending on what you think the rental industry or the mortgage market is going to do in the future, you might be better off investing in one or the other.
In general, REITs usually offer constant dividends, which makes them a stable investment. However, their prices don’t really make giant leaps since they’re paying so much back to investors in dividends, so don’t expect your REIT investment to shoot to the moon.
Alright, so we talked about public REITs, which let you get a hand in public trusts that invest in a lot of different real estate projects. But, let’s say you want to get into some private REITs that you can’t access on a stock exchange and you still don’t have a million bucks in the bank. It’s time to turn to crowdfunding!
#2: Crowdfunding Sites – Dipping Into the Private Sector
So, in general, private REITs have a much higher risk than public REITs, but they also have the potential for more rewards. And before real estate crowdfunding platforms became a thing, which happened fairly recently, only big institutional investors could get in on private REITs. However, these crowdfunding platforms allow pretty much anyone with a little bit of money and financial knowledge to get a hand in private REITs and start reaping the benefits.
One of the most popular crowdfunding platforms for real estate is called Fundrise, so let’s use that as an example. Fundrise currently holds a portfolio of over 200 real estate assets worth over $5 billion dollars. If you decide to put your money on the Fundrise platform, you’re basically buying into their portfolio, which you wouldn’t be able to access on a public stock exchange.
You can customize your own portfolio and pick which of their assets you think are the best investment for you, and then you can collect your dividends and watch the value of your investment grow. Now, with Fundrise and a lot of these platforms, there’s a minimum investment requirement. On Fundrise, it’s $1,000, which is no tiny amount. But it’s definitely a lot more manageable than other private real estate investments, which require you to put up tens of thousands of dollars.
But, if you do have that kind of money, let’s talk about what you could potentially do with it! First option: look into rental properties!
#3: Rental Properties – Make Money From Your Roommates
Just to be clear, to purchase an investment property, you’re going to need a whole lot more money than if you invest in REITs or put your money on a crowdfunding platform. However, the returns could be a whole lot more, not to mention, it might just give you a place to live rent-free. Let me explain.
So, imagine you buy a four-bedroom condo or house or something. Your mortgage payment is $2,000 per month. You live in one bedroom and you rent the other three out to tenants, each of which are paying you $800 a month in rent. That means that you’re collecting $2,400 a month in rent. Your $2,000-dollar mortgage payment is covered every month, you’re making $400 profit, and you have a place to stay absolutely rent-free. Plus, when your mortgage is paid off, you’re going to have a physical asset that is almost guaranteed to have appreciated in value.
This is the reason that people say investing in real estate is the best thing you can do with your money: because it’s a great way to earn passive income, it’s practical because it puts a roof over your head, and it gives you an appreciating asset on your balance sheet.
Want to make some more money after that? Take out a mortgage on your first rental property and buy another rental property and collect more income. And you can do that over and over again for as many rental properties as you can manage! People get absolutely filthy rich doing this, and you could too. All you have to do is save up enough to make that down payment on your first rental property and then start finding renters. If you can handle those two things, you could be a real estate tycoon in no time!
But maybe you’re uninterested in being an active property manager and dealing with the day-to-day problems of tenants, well, another way to make some money is by flipping properties!
#4: Flipping Investment Properties – Real-Life HGTV
If you’ve ever seen any of the HGTV shows like Flip or Flop, Fixer Upper, Masters of Flip, or Hidden Potential. Oh my god, there are so many of them. Yeah, well, basically any program on HGTV has something to do with flipping investment properties. And that’s not just Hollywood magic; flipping houses is a real way that real people make real money. And it’s pretty much done the same way that you see on the small screen.
The concept is simple: you buy a house that’s a little run-down but has potential. Maybe it’s in a really nice area. Maybe the specific type of house is just becoming trendy. Whatever. And then you pay to have that house renovated and sell it for a whole lot more than you sold it for. It’s a very doable way to make a big chunk of change for people who have the extra money sitting around to buy an entire house.
But, while it may sound pretty simple, there’s actually a lot that goes into making a successful house flip. First of all, you have to do your research and financial modeling. Look at the other houses in the neighborhood on Zillow or whatever.
How much are they selling for and how much can you realistically expect to sell for? How beat up is the house and how much are you going to have to pay for renovations? What are the realtor fees going to be? All of these things and a whole lot of other factors need to be taken into consideration before you spend a massive amount of money on a house. But, if the numbers add up, house flipping could make you some serious dough.
Maybe you don’t have the money to buy another house, though, but you already have one house: the house that you live in! If you have some extra space in there, why shouldn’t you make some money off it?
#5: Rent Out a Room – Bed and Breakfast Style
Before the digital age, the only way to rent out space in your house was by putting a sign outside that said, “Bed and Breakfast.” Today, though, with Airbnb being so wildly popular among travelers and vacationers or people looking for several-month-long stays, it’s extremely easy to find people to rent out that vacant space in your house.
This isn’t exactly what most people think of when they think of investing in real estate. But, still, if you already own real estate, why not treat it like an investment property and make some cash? Plus, with Airbnb, you’re way more protected against paying for damages because they’ll pick up the bill if anything gets broken.
Don’t want strangers in your home? I get it, but you can still get in the game! There’s a strategy out there called Airbnb arbitrage, which basically involves signing a lease on an apartment or something. Then, from there, you just rent that apartment out on Airbnb with the intention of covering your lease payment and making a profit. Maybe the lease on a one-bedroom costs $1,000 a month. And then you rent it out on Airbnb for $500 a week. You’re essentially making $1,000 just to do some vacuuming and put up clean towels. How easy is that?
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