Are you looking for the most lucrative ways to earn profits on your investments? Of course, you are. Who isn’t? Welcome to the world of real estate investment that not only adds more diversity to your investment portfolio but also provides an additional source of income.
There are many ways of earning profits in the real estate business. When you invest in real estate to make profits, you need to be educated, understand your goals and realize that nothing is guaranteed.
Buy Real Estate Investment Trusts or REITs
REITs are companies that own retail spaces, hotels, office buildings, and other commercial buildings. Since they pay high dividends and provide greater diversification, REITs make the perfect investment type for your retirement fund. Investors who don’t want or need a regular income can reinvest those dividends for growing their investment funds.
Instead of the focus on investing in buying and selling physical properties, REIT investors are more interested in real estate companies and their respective dividends. To qualify as a REIT, the trust must distribute at least 90% of its taxable income to shareholders. There are five different types of REITs and which one you choose is a significant factor in the risk you have to bear.
Typically, new investors stick to publicly-traded REITs, which they can buy from brokerage firms. The best part about REITs is that you don’t have to buy, own, or operate a property to earn profits and REITs typically don’t pay any corporate income taxes.
Flip a Property
You may have seen shows on HGTV where people buy, renovate, and sell for a profit. Flipping properties as it’s called can be very exciting and profitable if you like the challenge, can buy low, and have a great team in place.
The important factor of making money flipping houses is to follow the 70% rule, which means you shouldn’t pay more than 70% of a property’s after repair value or ARV.
House flipping can be a risky type of investment, especially if you don’t know what you’re doing. The 70% rule does leave a cushion but unforeseen expenses that aren’t calculated into the budget, like termite damage or leaky pipes can be extremely expensive and delay projects. Is it me or does everyone on a flipping show seem super stressed out and ready to jump ship, or rather house? There are a ton of anxieties that come along with flipping a house. I don’t know how these husband and wife teams do it. My husband and I can barely agree on a restaurant to go out to.
Invest in a Rental Property
When looking for a rental property, it’s important to choose a location that’s going to give you a high ROI. Vacation spots are very popular because depending on the area, people are willing to pay big bucks for a week, a month, or a whole season to get away.
In terms of buying the property, pay attention to property taxes and the school district, if not a vacation property. Is the apartment, townhouse, or home close to amenities? What’s the crime rate? Is it an up-and-coming area or one that’s slowly declining?
Successful rental property investments are reserved for those who do their homework. You should calculate your operating expenses, which will typically be between 35% and 80% of your gross operating income.
Another aspect of renting out your property is you become the landlord. If the dishwasher breaks, it’s your responsibility as the owner to fix it. Whether or not you personally head to the property or hire someone is up to you. Here are a couple of important points to remember as a rental property owner.
- Every penny you spend is less money you’re earning.
- It’s your responsibility to keep your renters happy and supply them with everything you’ve agreed upon in your contract.
- Reviews can make or break you if you’re working with an online site, so keep that in mind when interacting with your renters.
- Ensure you are insured, have a contract, and get a security deposit.
There are several companies that will handle the renting process, vet your renters, pay taxes on your behalf, send a handyman if something breaks, and set up a cleaning service. Depending on the level of service you need, there’s a company that can do it. Keep in mind these businesses take a percentage of your rental income so less money in your pocket.
If you’re not ready to purchase a place and rent it out, you can start small and rent a room in your house. Perhaps you have an in-law suite on top of your garage that can generate money for you. If you have a finished basement that no one uses, someone may be willing to rent it, which is another income source for you and your family.
One interesting aspect of this strategy is that if you rent out your home for fewer than 14 days in a year, you don’t pay tax on the money you collect. It can be a scary thought to have a total stranger in your home. The last thing you want is to have renters destroy your property or worse, murder you in your sleep.
Participate in Real Estate Crowdfunding Opportunities
This type of method is gaining popularity and you’ll see why. To raise capital for real estate investments, the method of Crowdfunding is used. This allows multiple people to get involved and is usually circulated through social media networks. With crowdfunded real estate ventures, investors now have a voice in the development process and can be more involved than ever.
Some of the pros include the ability to diversify your portfolio, not having to be a billionaire to participate, and not having to handle the headaches that come with owning traditional real estate. Some of the cons include the fact that this type of investment is an illiquid investment, meaning the property cannot easily be sold to get you the cash, along with the control factor. Once you invest with crowdfunding, the development of the property will be managed by someone else entirely.
Whether you are an amateur or a seasoned investor, the real estate market holds plenty of potential for your financial success. If you have already invested in gold, stocks, bonds, and other securities, investing in real estate will be a great way to mitigate risk and diversify your portfolio.
Like any other investment decision, the most appropriate real estate investments are those that best serve your financial interests and needs. First, figure out what those are and always consider both the advantages and disadvantages.
Tell your renters to pack their flip-flops and make sure your flip doesn’t become a flop. Happy real estate investing!
Here’s to the Wellness of Your Wallet!