Top 6 Real Estate Investments for Beginners
Real estate investments for beginners may give you visions of harried landlords dealing with broken pipes and burned out fuses. You might fear getting overwhelmed with the problems and annoyances that come with managing property and renters. Yet, done right, you can make money as a landlord or real estate investor without too much work. In fact, investing in real estate can be an excellent source of passive income—money that comes to you without you having to put out effort.
The key to earning more money for less work through real estate investmenting is knowing where and how to invest. We have compiled this list of 6 real estate investments for beginners. Some require more work, more capital and involve more risk than others.
#1: Buy Storage Locker Units
Investing in self-storage units is an ideal way to break into real estate with a low initial investment. You don’t need a huge mortgage or much amassed cash to earn a return. You can start with just one unit and add units to your portfolio as your profits grow. Demand for self-storage has been growing steadily for over 40 years and experts predict that trend will continue for ten more years. Buy from a company that offers full service. They take care of physical maintenance, deal with renters, and manage financial records and legal reporting.
Do your homework to ensure that the builder has researched the local market for the best chance of full occupancy and a profitable rental rate. When it comes to truly passive income from a small, relatively low risk investment, it is hard to beat investing in storage lockers.
#2: Buy into a Real Estate Investment Trust (REIT)
A REIT is like a mutual fund. You buy shares in an entity that then uses the money to buy physical real estate. You don’t own office buildings, industrial parks, shopping centers, hotels and residential developments; you own the company that invests in them. Not all REITs are the same.
Some are organized to pay high dividends. Others pay nothing, but are focused on buying and improving more property to increase the overall value of your investment. Some trade like stock on an exchange. Others are more like private equity. The easiest way to pursue REIT real estate investments for beginners is buying a publicly traded company through an online broker. You can see their rates of growth and rates of return. Plus they are regulated. The transparency and reporting required reduces your risk.
#3: Join an online real estate investing platform
These platforms match people who have money to invest in real estate with developers who need that money to finance projects. You can participate in the upside of their projects either through lending money and earning interest or buying equity to enjoy rental returns and your share in the growth in the value of the property.
You take on risk and have to pay a fee to the platform. These investments are not liquid, meaning you cannot cash out any time you want. Most platforms require that you be an “accredited investor,” earning at least $200,000 each of the last two years and have a net worth of $1 million or more, excluding your primary residence.
#4: Buying Rental Property
You have a number of ways of going about renting out property. You can start with buying a place to live in, renting our extra rooms or building a rental apartment in your structure. If you have more cash, you can buy a separate property solely to rent out. Expanding from there, you can buy whole multi-family structures or commercial real estate.
Becoming a landlord is work. You are responsible for marketing the property, background checking renters, maintenance and service, and covering financial and legal obligations. You can offload some of the work by hiring a property manager, but that will eat into your profits.
#5: Become a Property Flipper
A property flipper is someone who looks for distressed and undervalued real estate. After putting in a little work to clean up, modernize and renovate it, you sell it for more—hopefully much more—than you paid for it. As a real estate investment for beginners, this one is not so easy. You have to have enough cash to buy the place, money to make the renovations, and then be super accurate in estimating the cost of improvements and what you can get when you sell the property.
You can easily pay too much for repairs and see the market value a dive in an economic downturn. You’ll be underwater; having more money tied up in the property than the place is worth. Besides the risk factor, this type of investment is a lot of work—nothing passive about it.
#6: Book Short-Term Rental of Your Spare Space
If you aren’t ready to commit to a long-term deal and don’t have cash to sink into an investment, consider renting out a room to guests like a hotel room. Many sites like Airbnb, HomeAway, VRBO, Flipkey, TripAdvisor and Booking.com make it easy to list your space. Take a few pictures of your room, set a rate, select your policies and wait for paying customers. Going through a booking site gives you some protection against damage, help with the logistics, and they usually pre-screen guests for you.
Real estate investing is a classic way to build wealth and generate income. The ideas we share give you an idea of the breadth of opportunities, the varying risks, and the amount of work involved. Choose the one that gives you the right mix for your situation.