The 4 Easiest Ways to Invest in Real Estate
Updated: Aug 18, 2020
Have you thought about investing in real estate only to get discouraged after doing lots of reading and seeing the hurdles in front of you?
My goal is to make investing in real estate as pain-free as possible no matter your investment experience level.
Jumping into it, let's go ahead and break down a few of the easiest and quickest ways to get invested in real estate and take a step forward towards your investing goals.
Real Estate Investment Trusts, or REITs as we will refer to them moving forward, are one of the easiest and quickest ways to put money into real estate. A REIT allows you to invest your money into the trust as a whole where it is invested into real estate managed by a team of professionals acting as stewards of your investment.
The big benefit of REITs is that you can put your money in and forget about it until you receive a dividend, not having to concern yourself with tenant move-outs, leaky roofs, and having to fix squeaky hinges and toilets.
While we won't delve into the difference in too much depth, it is important to acknowledge that there are two different types of REITs. Equity REITs, that own equity in real estate and generate income through the rent collection on those properties and minimizing the expenses and maximizing revenues. These are the most common REITs that you will see and likely be investing in.
The other type of REIT is mortgage-based and typically referred to as an mREIT. These REITs are invested in the actual mortgage of the properties, and hold debt. They generate income through the debt payments made on the mortgages/mortgage-backed securities that they are invested in.
Since you are investing your money passively and not actively engaged in the investment, your return is going to be significantly lower than an active real estate investment. The average return of US REITs is currently 12.99%, which is still better than the roughly 10% average of the stock market.
If you have money or access to it but lack time, one of the fastest ways to get into real estate investing is to find an active flipper or someone who has the knowledge and experience to do a flip but lacks the money.
Partner up with that person in a joint venture scenario and provide the funds in exchange for a return on your investment. Often times, you'll see the return based on payback of the initial investment with any remaining profits being split according to an agreed-upon split based on what is worked out before putting up the money.
If the property rehab goes smoothly and the property sells within a reasonable amount of time, you will have your initial investment and hopefully a large percentage chunk more in your bank account in just a few months.
This option is riskier than investing in a REIT and involves some more active aspects such as connecting with a partner and hashing out joint venture details, not to mention putting up your own money to make the project happen. Understandably, the returns are also expected to be higher on these investments. Most investors that I cross paths with who participate in this shoot for at least 30% returns on top of their initial investment. If they can turn the property and have it sold quick enough, it works out well for everybody.
If you have time and energy but lack the capital required to pull off investing in real estate right away, consider investing your sweat equity and being the hands-on aspect of someone else's capital investment.
In contrast to the previous example, this time you are the person with the knowledge or useful skill that allows you to provide value on a real estate investment. Whether it is floating drywall and installing new flooring during the flip process or taking an active property management role, there are numerous ways to contribute value and receive an equity portion of the investment in return for your hard work.
Full-Service Investment Brokerage
If you have the capital needed to begin investing in real estate, have the desire to learn more about the process and be somewhat involved, and are ready to take the first step to investing without getting hung up by analysis paralysis, find a local real estate brokerage that provides full-service investment services to their clients.
This is one of the most valuable services that I provide to my clients and has certainly been a tremendous contributing factor to the amount of return business and referrals received from investors that keep my doors open.
This typically includes sitting down to walk through investing goals and based on those determining criteria by which properties will be filtered out of the search funnel once the hunt begins.
Upon determining investment goals, walking through the deal analysis process, and if appropriate, building out a custom real estate investment analysis calculator within Excel for the clients to plug numbers into if they want to look for properties in their free time.
Once all of that is knocked out, the broker should begin lobbing soft pitches your way based on your criteria. The properties that your broker is going to send aren't going to be numerous at first, because it is important not to get too overwhelmed when you first get into investing. They will send you properties that they have looked over and pass the preliminary analysis, and are worth looking into further. Usually either in person or via video tour. One of the most valuable things an agent can do is provide video tours to expedite the investment process, as investment properties sell quickly and you can't always get off work early to go tour it before someone else makes an offer.
Video tours also provide you with a means of investing in markets not local to your area. This is a huge force multiplier when considering all of the fantastic investment markets across the nation that are currently waiting for investors like yourself to capitalize on the opportunity.
Investing in real estate does not have to be restricted to your older years, and you certainly do not have to have millions of dollars sitting in your bank account. If you've ever considered investing in real estate or want to learn more, send me a message and we can schedule a time to talk more.