Investing in real estate has become quite popular over the years. There are many opportunities to try out whether you’re out to make big gains or just looking for a steady income over the years. However, investing in this sector is not without its complexities. Here are the various ways that you can invest in real estate.
Investing in Rental Property
This is one of the most common investments around and it’s relatively simple. You buy property and become a landlord. This means you’ll be paying the mortgage and taxes and also seeing to it that the property is properly maintained. In the best case scenario, you’ll be charging your tenants enough rent to cover the mortgage payments and other expenses. Once you finish paying off the mortgage, all that remains will be profit. If the property value goes up, you’ll also have a more valuable asset on your hands.
Joining a real estate investment group
In this scenario, a company builds an apartment block and investors are allowed to buy the units through the company. You can buy one or multiple units. The company thereafter manages the building. This means they handle the maintenance, vacancy advertising and rent collection. This is a good choice if you prefer to be a hands-off investor.
Trading in Real Estate
This is like day-trading in the real estate industry. In this case, the investor buys property and holds on to them for a short period before selling them. These types of investors usually only hold the property for a few months and hope to sell at a profit. To make it easier to get a profit from the sale, the investor has to either look for undervalued property or property that is in high demand in the market.
Real Estate Investment Trust
A real estate investment trust is a corporation that buys and operates income generating property using investor funds. You can buy a REIT on the stock market just as you would a regular stock. So as to remain a REIT, a corporation will pay out almost all of its taxable profit in form of dividends. This way, the corporation will avoid paying corporate income tax like a regular company. A regular company will pay corporate taxes and thereafter decide whether or not it should distribute the after-tax profit as dividends.
Leveraging allows you to own property by only paying a fraction of its value. In the case of stocks, you have to pay the full value of the stock in order to own it. Even when you make a margin call, the amount you’re borrowing is nowhere near what you get with real estate. Although you will eventually pay for the full value of the property when you clear the mortgage, leveraging allows you to start with a lot less money in your pocket and you can build a huge portfolio using this method. Some mortgages will require a 25% deposit but there are others that require much less.