How Do I Start Investing in Real Estate?

A lot of people want to learn how to start investing in real estate. There are hands-on and hands-off methods of investing. Your first decision is to decide if you want to own the real estate, or if you want to own a stake in a real estate investment.

Owning a stake in an investment reduces your overhead while also reducing total profits. However, purchasing a single or multi-family property requires capital that a lot of smaller investors may not have access to.

How to Start Investing in Real Estate Using 3 Easy Methods

1. Single or Multi-Family Properties

More than one-in-three households are renting. Landlords in many cities have seen their income increase as more people flock to renting rather than owning. A single or multi-family property is a good start for any investor, but there is one downside: financing.

You’ll find financing a single-family home is easier than a multi-family property, but you can reduce closing costs if you have the option to finance a multi-family home.

An owner-occupied investment, where you live on-site and rent out other units may be a good option. The additional units may help cover mortgage payments and allow you to have an easier time managing the property.

If you own a home already, you may be able to take equity out of the property to pay for the down payment of the rental. Financing will be your biggest obstacle to owning a rental home. Once financing is lined up, you’ll want to consider management.

Will you or someone else manage the property? You’ll need to consider your profit margins to understand if hiring a management company is a good option.

2. Rent Out Empty Rooms

Investing requires capital, and if you don’t have the funds or ability to purchase a property, consider starting smaller. Renting out a room in your home, or the entire home, is possible. Sites like Airbnb give would-be landlords the ability to begin renting without a long-term commitment.

You’ll be able to generate revenue from rooms, or parts of the home, that are not currently being utilized.

Renting a whole home is also possible if you have somewhere to go when the home isn’t vacant. Airbnb provides protections against damages and can help you generate extra income that can be put towards another rental property.

3. Consider Investing Platforms

Investment platforms are a good option because they don’t require hands-on maintenance or commitments. Instead, you’ll use sites like Prosper or Fundrise to invest in projects. Fundrise, for example, enables you to invest in hotels, office buildings and others.

Investors help finance projects for distributions that are either dispersed monthly or quarterly.

One factor to consider when choosing a platform is the liquidity options available. Fundrise offers shares in property that can be liquidated fairly quickly.

Starting to invest in real estate takes money. If you’re willing to grow your portfolio slowly over time or have a lot of upfront capital, you can invest in your own properties. If none of the methods above are of interest to you, there are also REITs, or real estate investment trusts, that you can invest in.

An REIT is similar to a stock, costs less to invest in and investors receive dividends from the investment.

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