Getting Started in Real Estate Investment
Many people believe that building wealth through real estate investment is as simple as buying a house and either reselling it or renting it out for a profit. While these are both possible options, there’s a lot more to property investment than this - and it is especially important for newbie investors to understand that. Before you can get started with real estate investment, you need to decide how you want to approach it. Here are the basics:
You Have 2 Primary Options
While there are a lot of different ways to go with real estate investments, there are two main approaches to getting started. The first is through purchasing shares in a real estate trust, and the second is by direct ownership of property. Here’s a quick breakdown of each:
- Real estate trust. A real estate investment trust, or REIT, is a company that owns and operates property and offers shares to the public for investment purposes. These properties include everything from commercial real estate to apartments to shopping centers. Because the investment is part of a larger portfolio, it’s actually quite similar to investing in a stock or bond. The portfolio’s performance is based on cash flow and other gains, such as selling properties.
- Direct ownership. The second path to investing in real estate is through direct ownership. This is a much more familiar method for most people, because it is simply buying a piece of property for investment purposes - just like buying a house for yourself. While it may seem simpler to some folks, this is not a passive form of investing. Direct ownership requires quite a bit more on the part of the investor to ensure that their investment is performing well and paying off.
More on Direct Ownership
Because direct ownership is such a popular choice for real estate investment - and requires more work - it deserves a bit more discussion. Under the direct ownership umbrella lie two more options: resell or rent the property.
- Reselling the property. Some investors like to purchase a home and then hang onto it for awhile before reselling it for a higher price and netting those sweet, sweet profits. Sometimes this is done as a “flip,” where an investor buys a home that needs some TLC, puts in some time and money to fix it up, and then lists it for a much higher price. Other times an investor will buy a home and just sit on it for a bit, waiting for the property to appreciate or the market to swing in a more favorable direction before selling.
- Renting the property. The other scenario, and the one that we see the most frequently at USREEB, is the investor who’s looking to purchase properties to rent out. Here, monthly cashflow on the home is the primary focus, as the rent should (in the best case scenarios) be able to cover the mortgage and operating expenses, leaving some left over for profit as well.
Real estate investment is a great way for both new and experienced investors to earn extra money and build their wealth. It’s not something to just dive into without all the facts, though, as there are several avenues to explore. Before getting started, decide if an REIT or direct ownership will work best for you. If you choose the direct ownership path, carefully weigh your options on reselling or renting the property. No matter what you decide, remember to do your due diligence and research, research, research!