Real estate investing consists of several avenues, all of which are reasonable choices for anyone looking to begin investing. As we discuss how to use real estate investing to build wealth, we’ll cover REITs, house flipping, and residential rentals. Take notes, and then choose which form of real estate investment is right for you.
Before choosing the right way to invest, decide to invest slowly. No matter the form of investment, getting too anxious and “counting your chickens before they hatch” is never wise. Real estate will always be there. Take your time, dabble in the form of real estate investing that interests you, and then slowly add to your portfolio as your budget safely allows.
A popular form of investing and a great place to start is residential rentals. To do this, the investor purchases residential properties and then rents them out. Renting is a great way to pay for the mortgage on the home if necessary, with the goal of the rent eventually becoming passive income. Once the investor builds enough equity in the first rental, they can purchase another property, and so on.
Rentals never simply take care of themselves, and it’s important to keep that in mind. Your investment needs protection, as do your other assets. There are many legalities to consider, so be clear on all the laws before choosing to purchase residential real estate as an investment.
House flipping is when an investor purchases a home that needs work at a low price. They then do the renovation work and flip it, which means they sell it for a higher price to make a profit. Flippers often work as a team so that they can share the burden of fixing up the house. The investment of flipping the house is subtracted from the selling price to equal the profit. Of course, there are risks involved, such as unexpected expensive repairs, which can result in little to no profit. However, if you’re a contractor or you can do a lot of the work yourself, house flipping is a great form of real estate investing to build wealth.
A real estate investment trust (REIT) is when a company uses money from other investors to purchase and maintain properties. The investors get a share of the profits from those properties according to how much they invested. REITs are usually traded just like stocks, and they’re most often commercial buildings such as apartments, shopping centers, or office buildings.
As you can see, each form of real estate investing is quite different from the others. Personality types, the expected return on investment, and budget should determine which form of investing is best for you. Either way, remember to build slowly and to be patient as you watch your investments and efforts pay off.