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8 strategies for investing in real estate

These are the 15 best real estate investing strategies. You can use these to figure out the best strategy for your own real estate investing journey. Real Estate Investment Partnership. Real Estate Investment Trusts (REITs). DIVIDEND GROWTH INVESTING MYTHS STORIES

This can be a longer-term investment, wherein investors can only afford to take on one or two properties at a time. Pros Ties up capital for a shorter time period Can offer quick returns Requires a deeper market knowledge Hot markets cooling unexpectedly 4.

REITs are bought and sold on the major exchanges, like any other stock. By doing this, REITs avoid paying corporate income tax, whereas a regular company would be taxed on its profits and then have to decide whether or not to distribute its after-tax profits as dividends.

Like regular dividend-paying stocks, REITs are a solid investment for stock market investors who desire regular income. In comparison to the aforementioned types of real estate investment, REITs afford investors entry into nonresidential investments, such as malls or office buildings, that are generally not feasible for individual investors to purchase directly.

More importantly, REITs are highly liquid because they are exchange-traded trusts. In practice, REITs are a more formalized version of a real estate investment group. Both offer exposure to real estate, but the nature of the exposure is different. An equity REIT is more traditional in that it represents ownership in real estate, whereas the mortgage REITs focus on the income from real estate mortgage financing.

Pros Core holdings tend to be long-term, cash-producing leases Cons Leverage associated with traditional rental real estate does not apply 5. Online Real Estate Platforms Real estate investing platforms are for those who want to join others in investing in a bigger commercial or residential deal. The investment is made via online real estate platforms, which are also known as real estate crowdfunding.

This still requires investing capital, although less than what's required to purchase properties outright. Online platforms connect investors who are looking to finance projects with real estate developers. In some cases, you can diversify your investments with not much money. Real estate is a distinct asset class that many experts agree should be a part of a well-diversified portfolio. This is because real estate does not usually closely correlate with stocks, bonds, or commodities.

Real estate investments can also produce income from rents or mortgage payments in addition to the potential for capital gains. What Is Direct vs. Indirect Real Estate Investing? Direct real estate investments involve actually owning and managing properties.

Real estate investing has long been an ideal vehicle for this purpose. Short-Term Buy and Hold Rentals This strategy involves buying and holding rental properties for relatively short periods of time — perhaps 1 to 5 years. Often the purpose of this strategy is to force property appreciation aka add value by remodeling, raising the rent, decreasing expenses, or all of those.

The short-term buy and hold strategy works very well for multi-unit apartment turn-around projects. Long-Term Buy and Hold Rentals This is the strategy of owning real estate with the intention of keeping it for the long haul. The benefits of this slow and steady and very successful strategy include rental income, tax shelter from depreciation expenses, amortization of loans, and price appreciation. I continue to use this strategy, especially on my properties in the best locations.

I like to keep these properties because they attract the best tenants, are the least hassle to manage, and tend to appreciate the most over time. You can also read my article Landlording to see how I manage my portfolio of buy and hold properties even while traveling abroad! The Rental Debt Snowball Plan The Rental Debt Snowball Plan is one of my favorite strategies to predictably build wealth, reduce risk, and eventually create an ongoing income stream from rental properties.

It basically involves gathering all of the cash flow from your current rentals and any other sources, and then concentrating that cash flow to pay off one mortgage debt at a time. The magic of this strategy is the speed that debt payoffs start to snowball i. But instead of using mortgages, you just save up cash and buy a rental property without any debt.

Some financial teachers like Dave Ramsey advocate this type of investing. This strategy is a way to quickly build real estate wealth and income by moving from smaller to larger properties, typically using a technique called a tax-free exchange. See this case study for an example of how the trade-up plan works. Debt Strategies These debt strategies put you into the profitable and often passive role of lender instead of an owner of real estate.

Hard Money Lending Hard money lending is the strategy of making short-term loans to real estate investors who buy rentals or fix-and-flip properties. Usually, the loans involve high-interest rates, points i. While the strategy can be very profitable, it also has large risks. Discounted Note Investing Discounted note investing means creating or buying notes i.

Because of this margin of safety, you can create large returns and reduce your risk. One form of Discounted Note Investing involves buying notes typically those that are delinquent from other owner financing sellers or from banks. This is a much more advanced strategy, so I recommend studying it carefully before jumping in.

My experience with Discounted Note Investing came from creating my own notes. I sold some of my rental properties to my tenants using seller financing. But instead of my tenant getting a loan at a bank, I became the bank. While this is a profitable strategy, federal and state regulations like the Dodd-Frank Act have made it much more difficult for small investors to navigate.

While there are a few exceptions, small investors must follow many of the same, expensive rules as large lenders. So, get help from your local attorney before beginning this strategy. Passive Strategies Although some of the passive strategies below still involve important upfront investment decisions, they require less day-to-day hassles than some of the prior strategies.

You invest your money with syndicators or general partners who find and manage deals for you and they receive a fee. Crowdfunding is a relatively new form of syndication investing where deal opportunities are marketed through online platforms like Peer Street this is an affiliate link.

I am beginning to explore some of these syndication deals myself, and one of my favorite sources of information is Ian Ippolito at theRealEstateCrowdFundingReview. Investing in syndications and crowdfunding CAN be very easy and passive, but successful investors with this strategy are still active. These successful investors actively screen the sponsors, general partners, and deal opportunities before making an investment.

REITs are very similar to a mutual fund. But instead of allowing you to own a piece of many stocks or bonds, these REITs allow you to own a piece of many commercial, income-producing properties.

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Rental property investing is best suited for those with the skills and interest in taking a very active role — including researching, selecting and acquiring homes, property management, maintenance, and handling tenants. If you need help finding a good rental property, you can use a free service like HomeLight to find a real estate agent in your area who can help you find the best deal for you.

REITs are companies that own and operate properties to generate income. You purchase shares that represent ownership of an individual real estate company that holds the properties, and you share in the rental income and profits from property sales. Investing in REITs is a very passive way to add real estate to an investment portfolio. Just be aware that some investing fees can be quite high and eat into your gains. Pros of REITs Easy to buy and sell shares on stock market exchanges — very liquid Easy diversification across this type of asset Lower minimum investment than flipping or rental property investing Regular dividend distributions that can be reinvested Lower risk than owning properties Exposure to real estate without being a landlord Cons of REITs While public REITs are easily bought and sold, private non-traded REITs can be complex, illiquid, have limited transparency and carry high fees No control — you are dependent on the integrity and competency of the REIT management Distributions are not guaranteed Start Investing in Commercial Real Estate Using Streitwise 3.

These securities are passively managed around an index of publicly traded real estate assets and often have low expense ratios. Similar to REITs, this strategy is ideal for the passive investor who wants a convenient way to add the diversity of real estate holdings to a portfolio without owning real properties directly.

Pros of Real Estate ETFs Easy to buy and sell shares — these trade on stock market exchanges — high liquidity Broad diversification across asset classes and property types is possible Lower minimum investment than flipping or rental property investing Regular dividend distributions that can be reinvested Lower costs than buying, selling and owning individual properties Lower risk than owning properties yourself Cons of Real Estate ETFs More susceptible to stock market volatility No control over asset management No property appreciation potential Invest in REITs with fundrise 4.

Real Estate Mutual Funds A straightforward and very common way to add real estate investments to your portfolio is to buy shares of a mutual fund that invests in commercial properties, giving you real estate exposure without the need to own, operate or finance properties yourself. This is perhaps the most passive and easiest strategy to invest in real estate. You can buy shares on major stock market exchanges. And there are typically a very low minimum number of shares that you need to buy.

Here, U. News contributors and Smarter Investor bloggers share their best advice for becoming a successful real estate investor. Have an exit strategy. Real estate strategies include buying rental properties and becoming a landlord as well as flipping properties, then hopefully earning a substantial profit upon their sale, writes Joel Cone, a business and real estate writer.

Some real estate investors have found success with three-year lease options, for example. Think carefully about the characteristics unique to each investment that will make your strategy successful. Join a local investment club, but don't attend 'boot camps. That's one reason it can be smart for novices to get involved in investment clubs. But be careful not to waste money on unnecessary boot camps or training courses, Cone writes.

Browse a local bookstore for information on real estate investing, and avoid getting sucked into expensive seminars and camps. Figure out what type of real estate investing interests you. If investing directly in real estate, investors should "choose a specific target market and study it intensely," Cone writes.

Lastly, investors should take small, common-sense steps daily toward achieving that goal, such as talking with sellers, owners and local real estate professionals. Investors should set money aside to act as a buffer in case the unexpected occurs.

Once an investor has scaled out to a large portfolio of properties, it's important to have enough cash on hand to rehabilitate 10 to 15 percent of those properties every year.

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