Money experts tell us to put aside anywhere from 10% to 25% of our earnings to save. What they rarely tell you is what to do with that money once it’s saved.
One way to build up wealth is by investing that money into something that carries a low risk while earning you more interest than you contribute to it every month. Real estate is one industry that is low risk with big rewards.
But not everyone is interested in being a landlord.
Thankfully, being a landlord isn’t your only option. If you’re wondering how to make money investing in real estate and what it all means, keep reading.
We’re sharing with you everything you need to know.
Ways to Invest in Real Estate Without Being a Landlord
What does it mean to invest in real estate? It means you’re involved in the purchase, ownership, management, rental and/or sale of real estate for a profit.
How can you invest in real estate? While you do have the choice to become a landlord, you also have a few other options such as:
Online Real Estate Investment Opportunities
Online investment sites, like Peerstreet and Fundrise, let you get in on the fun without ever having to leave your home.
Fundrise
Fundrise is a great place to get started in investing in real estate because it’s cheap and simple.
Fundrise acts like a crowd-sourced real estate investing. You pool your money with others to buy portions of individual properties. These properties are spread across different asset classes such as:
- Single-family units
- Multi-family units
You can easily diversify your holdings and everyone shares in the returns. All you need is $500 to get started.
Peerstreet
Peerstreet members can only invest in real estate backed loans, not the actual properties. This means you’re investing in other people’s debt and you can do so for as little as $1,000 per loan.
However, you must be an accredited investor to sign up.
REITs
REITs or real estate investment trusts are companies that invest in real estate that produces income. There are several types of REITs available such as:
- Investing in commercial properties
- Investing in residential properties (Equity REITs)
- Investing in mortgage-backed loans (Mortgage REITs)
Investing in a REIT means you do not own any buildings. Instead, you own part of the REIT and all that’s included in its portfolio.
Traded Publicly on Secondary Stock Exchanges
REITs are also often traded publicly, the same way stocks are. You can even find them listed on secondary stock exchanges.
If you want to diversify more, you can invest in a REIT ETF (exchange-traded fund). This is a low-cost way that lets you invest in multiple REITs at the same time.
Hiring a Property Management Company
Some people prefer to own their own real estate property without a bunch of other investors. Thankfully, those who don’t wish to become a landlord still have the option of hiring a property management company to help them.
Hiring a property management company is a great way to enjoy the benefits of being a landlord without any of the hassles.
Property Management Companies Handle Everything For You
For a percentage of your total rent collections, a property manager or property management company will help you with the following tasks:
- Find and screen tenants
- Collect rent
- Handle all repairs and maintenance
- Manage tenant complaints
- Deal with evictions
Make sure you have enough cash on hand to make a down payment and deal with any necessary initial repairs before you start renting your property.
Tips for Buying a Real Estate Investment Property
Before you buy any property or begin investing in real estate, you should always do research first. This way, you won’t get blindsided down the road with any unexpected surprises or expenses.
You should familiarize yourself with common terms and numbers used in real estate investment as well. Here are a few things you need to know before you invest:
Make Sure There’s Enough Money Available
Begin by paying down any debt you currently have. You do not want to get yourself into a situation where you don’t have enough cash to pay off your first mortgage or a student loan.
Make sure you have enough for the down-payment. While down-payment of 3% is typical for a person buying their primary home, lenders will want a down-payment of at least 20% for an investment property purchase.
Calculate Your Expenses
There are other expenses involved in owning property besides buying the place such as:
- Insurance
- HOA (Homeowners Association) fees
- Property taxes
- Operating expenses
- Monthly expenses such as pest control and landscaping
- Maintenance costs (estimate 1% of property value annually)
- Landlord insurance
Also, if you do need to borrow money to buy property, keep in mind that interest rates on investment properties are higher than what a traditional mortgage interest rate is. A high-interest rate can easily dip into your monthly profits.
You Should Earn roughly 10% After Costs and Income are Calculated
After you calculate all your costs and add in how much you can expect to earn in rent on a monthly basis, calculate your margin. If that margin is below 10%, it may not be a good investment for you.
And while a fixer-upper may look like a great idea, unless you have a contractor (or yourself) who is willing and capable of doing great work for a very low cost, it’s not worth it.
What Qualities First-Time Real Estate Investors Should Look For
It’s a good idea to begin by investing in a less expensive home. The higher the price of the home, the higher your ongoing expenses are.
A good starting point is a home valued around $150,000 or less that’s in fairly good condition.
Location is Everything
You should also look to buy an investment property that’s located in an area where you can enjoy the following perks:
- Low property taxes
- Low crime rates
- Growing job market
- Good school district
This will make it easier for you to find and retain renters, meaning you’ll have a reliable source of income.
Work With Us
If being a landlord isn’t for you, we can help. We work with investors all the time to help guide them to find the right property!
We can do the heavy lifting while you enjoy the income. Click here to contact us to get started on finding your investment property today.