This post was originally published and is credit to this site
Investing in real estate is a popular strategy for growing wealth. Adding real-estate investments to your portfolio can add diversification and help protect your wealth from the volatility of the stock market.
Check out these real-estate investing tips for beginners to discover if you want to become a real-estate investor.
How to start
Follow these general steps to start investing in real estate:
• Determine how much time and money you want to spend on this type of investment.
Most Read Stories
Unlimited Digital Access. $1 for 4 weeks.
• Set your investment budget: $1,000 to $3,000 for fund investors, up to five figures for direct real-estate investors.
• Do your research. Find out which options and group investment options are available to you.
• Choose the investment option that fits with your financial and time availability. Less time and money is required for REIT investing, whereas greater outlays are required for direct real-estate investing.
• Save up a cash cushion, as investment-related expenses will crop up. Direct real-estate investors will need a larger cash cushion than hotelier real-estate investors.
• Be prepared for setbacks. Like any other financial endeavor, you’re likely to experience challenges. But if you do your homework first, you’ll be prepared.
Types of real-estate investments
Here are four of the most accessible types of real-estate investing:
Rental properties: To become a direct owner in real estate, find a home, condo or apartment building, buy it and then rent it out. Before becoming a landlord, you’ll need a down payment, property inspections and to review the property’s rental potential and expense records.
Benefits of this option include the opportunity for steady cash flows and capital appreciation, along with tax benefits. However, it takes due diligence to uncover a suitable rental property selling at the right price.
Find a real-estate agent who deals in rental properties and start viewing properties. Be prepared to evaluate the property’s financial records. Do the math to ensure your rental property will provide a good return on your investment.
Real estate investment trusts: Also known as REITs, these real estate investment companies own or finance income-producing real estate. REITs buy many properties — including apartments, hospitals, hotels, industrial facilities, office buildings and mortgages — and then sell ownership shares to individual investors.
REIT investors enjoy many of the same benefits as direct real-estate investors. A REIT must pay out at least 90 percent of its taxable income to shareholders annually. REIT returns outpace the consumer price index, according to REIT.com, making REITs a good inflation hedge.
REIT funds might increase in value, but positive returns aren’t guaranteed. Buy during a housing bubble, and when real-estate prices return to normal, your REIT might drop in value.
You can invest in a REIT as easily as in a mutual or exchange-traded fund.
Real-estate investment groups: To start a group, pool your money with other investors to buy property together. You get the benefits of owning a rental property — without the cash and management responsibilities.
The National Real Estate Investors Group offers education and information about how to join a group. Club goals — education alone, or education and investment — and monthly dues will vary.
Joining a real-estate investment group provides the opportunity to learn and potentially invest in real property. But getting into business with others is complicated and doesn’t always work out. Read the group’s policies carefully before joining, and have an exit strategy, just in case.
Home rentals: With the advent of the sharing economy and websites such as Airbnb, ordinary individuals can become landlords. Expert tips to become a hotelier begin with understanding your goals for becoming a rental host. Renting your property through the sharing economy requires a serious commitment, financial outlay, appropriate insurance and management.
The benefits of renting a part of your home include extra cash and the opportunity to meet interesting, new people. Being a hotelier involves preparing the site for the visitor, managing the listing, being available for questions and concerns, and regular cleaning.
No matter what route you take to become a real-estate investor, evaluate your personal circumstances before investing. Try getting your feet wet with a small investment in a REIT fund. It’s more affordable than buying an apartment block. If you’re ready for greater real-estate management, check out direct real-estate investing, or rent out a room through the sharing economy.