If you decided to invest in real estate, then you are doing the right choice. Investment in property can provide you great return potential and vary your portfolio to protect you from any recessions and possible economic situations. However, are there any best variants to invest in property?
Of course, this question needs, at least, 7 ways. From your side, you need to decide which of them is going to work the best for you. Each of these ways needs different capital requirements, investment dynamics, and risk levels.
Investing in a digital REIT
If you are looking for passive investment in a property then joining a digital real estate investment trust would be the easiest for you. This way you can share not only reward but also risk with a group of investors who pooled their funds to buy a wide range of property assets. With the development of technologies, it has become easier for companies to offer digital and top-quality updates for their investors. Nowadays, it is easy to look at the performance of your REITs only using smartphones and get push-notifications with information and photos on the development of the requested property. For example, this can be income on a lately sold property complex. Such transparency can help you make strong and thought-through decisions.
Experts believe that REITs popularity will stay for a long time, thus we advise you to look fr a plan that can suit you. This sphere offers you various options through the web search. Moreover, some options start from $400-$500.
Developing a small house in your backyard
As a rule, such fast-growing cities like Texas or Austin have high prices for land. Nevertheless, many people wish to have their property near downtown while in reality there are not enough low-cost properties for them. To solve somehow this situation, many homeowners in the downtown area are building small homes to gain extra profit.
More and more companies become qualified in the development, design, and installation of these tiny houses. Many of them are no more than 300-500 square feet. As a rule, there are different prices, however, they are still can be easily afforded.
To profit from such an opportunity, study your local regulations to find out whether you are allowed to develop such construction for profit. We believe, such a trend is going to stay for some time, however, cities will have to update their laws to co-exist peacefully.
Buying a real estate for co-living
This is another latest variant to make a profit from the purchase property and urbanization. You buy properties that are, as a rule, quite expensive to rent (four- or five-bedroom properties). Then, instead of renting home only to one household, you can rent in one room for a higher price.
Such an option is used the best by millennial renters. For them, it is a great way to find new friends and get accustomed to a new city. Moreover, the rent per person is much cheaper than renting a whole one-bedroom property. There are several companies that collected a lot of capital to make a profit from this trend and provide renters a needed service like laundry, supplied Wi-Fi, and furnished rooms.
We are not sure about the number of people who will be interested in such cohabitation, however, it is still its audience. Like with small houses, make sure to study local zoning laws before buying such property.
Angel investment in prop-tech startups
Recently, investors put billions of dollars on property technologies that are dedicated to changing industry through specific crucial technologies that solve various issues. The American housing property market is a gorilla that has $27 trillion. As a result, more and more investors are trying to be part of it.
As a rule, almost everything related to property sales and leasing can be rebuilt from the foundation. Many reconstructions are to spark new interest in the client with a quite well-run process. Some companies are redefining their possession through a notion known as fractional ownership. We are happy about the cases when the company changes down payment with the help of surety bonds. Besides, some promising startups gain support with a variety of iBuying. Of course, it is not clear what concepts are going to be the most successful, however, the real industry field, in general, is going to face huge changes over the next year.
Thus, search for suitable startup and ride on the wave can bring a great income for you. Sometimes it can be different to be part of such investment, however, try to acquire seed deals by using a program for a business accelerator or by asking a certain network for specific introductions.
Purchase a vacation rental
a vacation rental has several key differences from a long-term rental of property. On the plus side, you can use the property when it is not occupied by tenants. Besides, it is much easier to fund a vacation rental, specifically if it is a perfect description of the second home for the lender. Statistics show that a vacation rental is much more profitable per rented day than long-term rental.
However, never forget about possible issues related to a vacation rental. Maintaining and marketing a vacation rental need you to be more involved than with a long-term variant. Property management itself is also quite expensive. Be ready to pay a property manager approximately 25% from rent on a vacation rental. In comparison with the real estate standard for long-term rental properties, it is more than 10%.
Moreover, you may not be permitted to rent properties in chosen locations. Otherwise, you may need a special license that can be quite expensive. Of course, it is easier to receive funding of the second home, however, you have to match criteria that formed on your current property and not your possible rental revenue.
House hacking of property portfolio
First of all, house hacking is a mix of purchasing a property to use it as a main residence and purchasing a rental property. Altogether, the notion is related to purchasing a residential real estate with two or four untied and living in one of them while renting the others. However, such a strategy can be used in purchasing a single-family house and renting those rooms.
For example, let’s imagine you have found four units for $210,000. With insurance and taxes, you are going to have a mortgage payment in an amount of about $1,600 per month. When you purchase the property, you rent 3 units for $700 each and the fourth one. As a result, the rent pays off all your mortgage payments, and you are gaining $500 per month and developing equity in the much better property than you have right now.
House hacking is a great affordable variant to start developing a portfolio of properties for rental. Since you live in that property, even a residential property with many units can go after financing for a primary residence that is followed by lower interest rates and, of course, lower requirements for payment than loans for an investment property. As a rule, you have to live in the property for a specific period after you purchase it, however, once that period ends in a year or two, you can do the same with a new multi-unit property.
The main disadvantage is the lack of privacy. It is always great to have a personal yard. Thus, the period of cohabitation with your tenants may cause many embarrassing moments. That being said, if you invest in a new real estate and you do not need your own home, think about house hacking.
Fixing and flipping of a property
The notion of flipping properties and fix-and-flip is related to situations when people purchase a home for the only reason to do certain repairs and then as quickly as possible sell it. By virtue of some related TV shows house flipping has turned to be more popular during the last few years. If truth to be told, if you flipping properly according to your strategy you are can gain a lot of money.
However, if you are a more passive investor then flipping houses is not for you because it needs a lot of your involvement, Besides, you might risk falling in flipping. The same happens even to the experts. If you still want to try, try to remember these important things:
You earn money when you purchase and not vice versa. Remember about the 70% rule when you planning on purchasing a property: your repair experiences, acquisition costs, and holding costs should not be more than 70% from the prices you wish to sell your property. As a result, you are protected with a cushion during the uncertainty of flipping homes without a huge risk to lose your money. If you see that property does not correspond to the 70% rule that you can leave it.
If you flip houses you should value your time. There is a chance that you can ruin profit margins by spending a lot of time dragging your feet and doing repairs. Your main goal should be a home improvement that should be scheduled before you finish the deal and put a realistic price for the final flipped product.
All in all, there are many things that might go wrong during flipping home, thus, study meticulously this investment and plan all stages of work.