Real Estate

All You Need to Know About Best Types Of Real Estate Investments

Real estate investments are a proven method to grow your net worth. However, investing in real estate is neither straightforward nor too complex. We are asked a number of questions when it comes to real estate investment.

People ask how to get into real estate and how to invest in real estate with no money among many others. Little do they know that before jumping into the real estate industry, first, they should know about the types of real estate investments. After that, choose the best one for themselves. 

Real estate investment is a stable and relatively safer asset class than the stock market or cryptocurrency investment. The fundamental principles to start investing in real estate require taking into account location, value, property size, and your budget. That said if you have some knowledge of how to become a real estate investor, you can start with large, little, or no investment. This all depends on the type of real estate you are investing in. 

Among the long list of investment properties, you must be able to pick the right one for you. Here, we are presenting you with the best type of real estate investment list. This guide will go through various real estate investing methods for beginners and experts with narrow real estate portfolios. 

Best Type Of Real Estate Investments – Choose the Best One for You

1. Wholesaling

Wholesaling is one of the most common ways of entering the real estate business. It requires little or no money for investment. You can become a wholesaler by being a property broker or by working with real estate holding companies. In this, you basically don’t buy properties yourself but sell other people’s properties. A wholesaler contacts the property seller and builds a contract with him. This seller then looks for investors or end-users to purchase this property. 

Once the wholesaler gets the party, he sells it at a raised amount, keeping the difference as his profit. On average, a wholesaler makes about $5000 – $10000 as commission per property. This way, you can generate an annual income of around $100,00. It is a short-term business strategy. 

Not everyone can be a real estate wholesaler. You need a real state license for this. Furthermore, you will provide information on your position as a real estate professional before contracting with sellers or buyers. A wholesaler must know the legal regulations of dealing with the properties in a specific state. This is because they usually work with distressed properties. 

2. Live-In Flips

Live-In flip is another type of real estate investment where an investor repairs a property while living in it for a short duration. The investor critically chooses the best places to invest in real estate fix and remodel it to sell at a higher price. It is a flexible and fast strategy to make profits in the real estate business. 

An investor buys a fixer-upper to flip a property. However, you will have to be mindful of the legal complexities involved. Usually, the investor is required to get it classified as residential for renovating and lending purposes. Investors usually invest using the 70% rule. This will help them to cover the cost of purchase, renovation and help them earn a decent profit. In this rule, you spend less than 70% of the home’s expected value after repair excluding the costs you will incur renovating it. 

Investors also use the BRRRR strategy and use live-in flips for rentals. Depending on their requirements, they can either give up the property for long-term rentals or short-term to an Airbnb, depending on their needs.  BRRRR strategy stems from buying, rehabbing, renting, refinancing, and repeating it. 

3. Land

Land investment is one of the oldest methods of entering the real estate business. However, today, its value is questionable when we compare it with other types of investment. Purchasing raw or vacant land does not generate any investment other than the capital when you sell it. Thus, investors need to perform in-depth market research prior to buying land. 

People buy land to build residential or commercial projects. Moreover, investment in lands is more appropriate for expert investors. This is because they are able to deal with the complications like zoning restrictions, permits, flood plains, and financing the construction. 

The purpose of investment plays a greater role. Whether you will put up the building or house for rent or use it for a living has a more significant impact on land size and location. If you are building it for renting purposes, find the best housing company for the job. This is because this will simplify the process for you.

4. House Hacking

The word hacking may lead you to think differently, but it is one of the successful investment strategies right now. In this strategy, the owner uses the house to generate income. The term is usually used to invest in a multistory property, use one unit for living and rent out others to tenants. The rental income from tenants builds a cash flow. Therefore, you can use it to pay the mortgage or cover the housing cost. 

Renting a house to tenants comes with the additional responsibility of being a landlord. The amount from rent may help you clear bills, deal with the house expenses. Furthermore, it builds a passive mode of income that you can reinvest in the real estate market. 

5. Flipping Houses

Flipping houses is a short-term real estate investment strategy. In this, an investor buys a house at a lower price and does some fixes to sell it for some profit. The strategy sounds a bit harder, but it is not that hard in reality. The house is renovated quickly and sold at the earliest as you have to pay the mortgage and tax amount. Additionally, you are not generating any income from it. However, if generating income was a priority of yours, you could research the BRRRR method. 

Flipping houses requires strict financial calculations. In this, you need to how much you are investing in a house, the cost of repair, and how much profit you will earn from it. You can take help from a contractor to estimate the pricing. You can also ask for help or partner up with an experienced person using this strategy to make money. Flipping houses is risky when we compare them to other types of real estate investments. 

6. Buy-and-Hold: Short-Term Vacation Rentals

Some people get into the real estate business to purchase and lease a property. And instead of living in it, they put it up on rent. Short-term vacation rentals, as the name suggests, are rental properties available for less than 12 months. It can be for a couple of days, a week, or a month, but not more than 12 months. The rental property is usually a townhouse, a condo, or a single or multi-family house. 

Short-term vacation properties are more successful at tourist destinations. This is because people prefer such properties to stay instead of booking expensive hotels. Depending on their needs and requirements, they reserve a room, multiple rooms, or condo. Short-term vacation rentals have transformed from a side gig for making money during vacations to a booming industry. Online apps like Airbnb have increased the accessibility to such properties. 

Putting up your property for vacation rental requires effort and continuous management. You also need to look after the state’s local laws and regulatory restrictions. This is because some places like New York have strict policies on the number of days you can rent a property. If you are unfamiliar with the laws, you can take help from a real estate professional. Additionally, you also require to know about the tenants before renting out your property. This is a must even if it is for a short duration. 

7. Buy-and-Hold: Long-Term Leasing

Long-term leasing is a rental agreement for six months to three years. Leasing for a longer duration is also a possibility. Commercial properties are often leased for ten or more years.  Residential properties, on the other hand, are unavailable for long-term leasing unless there are exceptional circumstances. 

Long-term leasing has its pros and cons for real estate investors. The pros include stable rental income without the risk of vacancy, less administrative hassle. The cons include lesser flexibility and lesser rental income.

 If the rent in the area of your property increases, you cannot increase the rent until the lease period is over or the lessor empties the place. You can overcome this problem by adding a mid-term rent increase clause in the leasing agreement. This clause is profitable for the investors as it raises the rent of their property as per the market value. 

8. Crowdfunded Real Estate Loans

If you think about how to invest in real estate with little money, then crowdfunding real estate investments is the answer for you. The term consists of crowd and funding. It means that a crowd or group of people invest in purchasing a property. This investment strategy is legal, offers a good return, and possesses little risk for investors. 

Crowdfunding investments give real estate investors a chance to enter the real industry with a little contribution. People do crowdfunding among friends and family or use publicly available crowdfunding platforms on the internet. Crowdfunding makes real estate investment accessible, brings more investment opportunities, and helps to diversify the portfolio. 

The investment strategy offers a return of a minimum of 6-7% on conservative investments. On other hand, it can give massive 300-400% returns on more aggressive investments. Some crowdfunding gives quarterly profits of 6-11% on your investment or large payouts when the investors sell the property. 

Unlike other real estate investments, crowdfunded real estate loans do have their risks. This is because you cannot control your property as it is managed centrally by the group or platform head. Furthermore, you cannot sell your property in case of need. 

9. Private Notes

Private note investments are yet another but complex investment strategy. Notes or mortgages are legal notes and are often used interchangeably. However, it is worth learning that both are different. A mortgage is a contract linking a property to a note as collateral for the debt.  A note describes all the money resources, defines the terms and conditions of the borrower-lender agreement. It also includes the rate of interest and timeframe for recovery of the amount. 

Real estate investors earn profits by purchasing mortgage notes as an investment. Lenders who don’t want their property anymore or are unable to pay the mortgage sell notes to investors. These investors then retain these to build a passive income. Notes investment requires patience and risk management. It is difficult to calculate the net profit from private notes investment. This is because many variables affect the total amount the investor receives against his investment. 

10. Private REITs

REITs stands for real estate investment trusts. REITs provide the chance to involve in commercial real estate properties such as hotels, malls, and offices by purchasing the shares of companies. Private REITs are the company’s shares that are unavailable on the national stock exchange, or not registered on SEC. The private REITs receive one or more exemptions to security law sets. The internal board of trustees or directors manages the investments under the guidelines of the Investment Advisers Act of 1940. 

Under the rule set of regulation D, only institutional investors and accredited investors can purchase these real state properties. Investors invest a minimum of $1000 to $25000 and offer a great return on their investment. 

11. Publicly Traded REITs

Publicly traded REITs own, finance, and operate income-generating properties in rental businesses. It can also be in any particular sector of this asset class. Publicly traded REITs are listed properties on the stock exchange and are a great alternative to traditional investments in bonds and stock. To build their portfolio and earn profits, investors can purchase publicly traded shares in a REIT, a private REIT, or a REIT fund on any major stock exchange. 

REITs pay dividends and a return consisting of capital gains and rental incomes. The enlisted publicly traded REITs are bound to pay 90% of the total earnings to shareholders. This is essential to qualify the security criteria regardless of the value of shares in the market. Publicly traded REITs behave like equity and are riskier than bonds or shares available in the stock market. 

Conclusion

Real estate investments are good investments with limited risk and great profits. In order to invest in the real estate market, it is essential to consider many variables such as location, size of the property, the amount you want to invest in, and the type of real estate property you prefer. 

There are many types of investment properties in the real estate market that offer a chance to invest within your budget, including low or no investments. Investors can choose the best type of real estate to invest in as per their judgment and requirements.