Real estate investing has become increasingly popular in the last decade due to a strong housing market and competitive interest rates. Each day more and more people decide to enter the real estate market, either by buying their first home or buying a secondary property to lease or renovate. However, real estate isn’t as easy as most people think. Real estate is not simply about buying, selling, renting and/or renovating properties. There are a lot of factors to consider and lots of things to learn.
If you are an aspiring real estate investor, there are several ways for you to enter the market.
1) Build and sell
If you have significant capital, you can enter the real estate market as a developer. A developer basically purchases land (usually cheap, raw land) and build properties which will either be sold or leased. Most build and sell investors choose to develop single family homes and townhouses since it’s easier to sell or lease them. Nonetheless, developers especially the big ones often develop high-rise condominium buildings, commercial properties and office spaces among others.
The downside of build and sell is that you need a large amount of cash to start with. In order to remedy liquidity problems, most real estate developers partner with banks for financing or sometimes the properties are pre-sold to buyers.
Flipping is the practice of buying, renovating and re-selling a property for a profit. In the US, flipping is arguably one the more popular ways of real estate investing. It is not really surprising since flipping does not require that much money compared to the build and sell approach and is also more flexible.
For investors looking to flip real estate properties, the most important step is actually the first step – the search for the right property to buy. Investors must have a keen eye for undervalued property. Likewise, they should also keep a close watch on their renovation budget. Most unsuccessful/unprofitable flips is a result of spending too much on renovation.
3) Buying rental properties
Buying rental properties is one good way to build a constant stream of income. A portfolio of rental properties is also considered a gateway to financial freedom. Just think about it, if you own 10 rental properties, netting at least $500 a month for each property, you’re already financially secured for the rest of your life.
The challenge in building a portfolio of rental properties is always the first one but as soon as you learn the ropes and find the discipline required to succeed, a portfolio of 10 properties isn’t impossible.
4) Buying tax liens and tax deeds
If you have little money to invest, buying tax liens and tax deeds may just be the perfect alternative for you. Tax liens are unpaid tax obligations attach to a real estate property. As a tax lien investor, you’re bidding to carry and settle the obligation. In return, you’ll be given a tax deed that serves as a notice the owner of the property to pay you for the attached tax lien on his property. Tax deeds also incur expenses which is usually 3 to 36 percent, depending on the state where the property is located.