Real estate investing can be a very lucrative business if you invest time to learn its in and out, and you’re willing to break a sweat or at least flex your mental muscle to learn some unusual ways to enter into this capital-intensive industry.
Why It’s Now Easier to Enter the Real Estate Business
In the past, financing real estate involved huge sums of money. Of course, this created high barriers to entry, which inevitably resulted in a near monopoly business environment, much to the detriment of the consumers.
However, things have changed with the advent of new investment products, more conducive real estate laws and regulations, and even online technologies. All these factors have leveled the playing field, allowing small investors to engage in buying real estate or selling real estate, directly or through third parties or platforms.
Below is the list of creative ways to start your real estate investing even with just a limited fund.
1. Invest in REITs or Real Estate Investment Trusts
REITs are almost similar to mutual funds, although the key difference is that they involve companies that solely operate in commercial real estate industry that comprises apartments, hotels, office buildings, and retail establishments.
A good number of REITs pay high dividends, some even as high as 12 percent. Hence, some financial experts have suggested that they can serve as a good investment for retirement.
However, a word of caution: Dividends are not always guaranteed. Hence, you may want to look at the company’s 5-year-dividend-yield-average instead of just one year.
Aside from dividends, REITs also let you enjoy capital gains or profits, which you get from the sale of an investment.
Meanwhile, not all REITs are created equal; some are traded on the exchange or equity markets, while some come in non-traded version, which means they are not easily sold (i.e., less liquid).
Also, the value of non-traded REITs, which you can assess by looking at their financial statements, is harder to estimate compared with publicly listed REITs.
Publicly listed REITs are regulated by the Internal Revenue Service, and so the perceived risks are lower compared to non-traded REITs. This also means that they meet specific standards regarding their source of income and the diversification of asset, which are laid out primarily to protect the investors.
With publicly listed REITS, the starting investments usually cost between $500 and $2,500.
2. Rent Out Your Spare Room
The advent of online technology has leveled out the playing field in the real estate industry. For instance, you can list your vacant room on hospitality services and marketplace (Airbnb is one good example) to find people looking for short-term lodging.
You may want to choose reputable services, meaning they pre-screened potential renters and provide protection should the tenants cause damages to your property.
Before you start your marketing efforts, make sure that your rooms are conducive for guests or tenants. Furthermore, the rental unit should be priced right–i.e., it is in line with the average rate in your neighborhood or city.
Take note that pricing too high can result in vacant rooms that will languish too long on the market.
If your house is near local attractions or your town holds popular festivals and other events, renting out your spare room could be a lucrative business.
3. Invest in Rental Properties
While this will cost you more money, take note that you may still qualify for a residential loan provided that you occupy the property yourself–i.e., you live in one of the rooms or units, while the rest is being rented out.
Of course, you can also rent out the entire property. But this arrangement will entail hiring a property manager if you don’t like the idea of doing all the maintenance yourself or showing up at your tenants’ doorstep to fix some plumbing issues.
Before you purchase a rental property, you should be able to accurately estimate the recurring maintenance and repair cost, insurance, and taxes, which of course should be higher than the rental fee.
To determine how much you can charge for your rental property, it should be close to 1 percent of its home value. Of course, you should also need to consider what landlords are charging for similar properties in your area, and the supply and demand “environment.”
With a reasonable or competitive price, your property is less likely to languish on the market.
4. House Flipping Business
If you’re good at DIY home projects, chances are you have already entertained the idea of becoming a professional house flipper.
While the perceived risk is higher, the financial reward is higher as well. Wildly successful flippers, despite having different property portfolios and scope of operation, have one thing in common: They can accurately estimate the cost of repairs.
One way to minimize the risk is to find an experienced partner whose skills complement yours. A good rule of thumb is to find a contractor with a solid background.
You may also reach out to industry experts such as FlipOut Academy, which can provide one-on-one training to help you succeed in the house flipping industry.
Another key to your success: Selling real estate quick. Take note that the longer your property languishes on the market, the more cost you incurred from paying the electricity bills, marketing, and maintenance.
5. Utilize Peer-to-Peer Lending Companies
Companies such as LendingClub and Prosper serve as an online marketplace that connects borrowers and investors, making them a perfect platform for people who are just starting their real estate investing business.
For property developers financing real estate becomes easier with these online platforms, while small-time or novice investors enjoy more opportunities to diversify their portfolio.
6. Purchase Cheap Property or Raw Land on eBay and Craigslist
You may find low-priced properties or raw lands on classified ads websites and e-commerce companies–e.g., eBay and Craigslist. While the vast majority of them have very little value, this may change over time. Hence, this “route” generally takes a lot of patience.
Factors such as population growth, changes in nearby properties, new infrastructures (shopping malls, schools, hospitals, workplace, etc., that increase the liveability quotient), and good city planning will result in the appreciation of your property.
However, don’t get all too excited about the heavily discounted price. When buying any type of property, you should always factor in the additional cost such as the annual property tax, title-transfer fees, maintenance, and appraisal/inspection fees.