We all dream of sitting at home, not having to go to work while still getting a paycheck. With real estate investing, that can happen—if done correctly, of course. Investing in real estate can be an extremely lucrative venture and can help diversify your investment portfolio. The passive income you earn may even be substantial enough where you don’t have to work a 9 to 5 ever again.
There are plenty of investment options in real estate besides becoming a landlord. While we’ll discuss the benefits of becoming a landlord, you’ll also find other ways you can get your feet wet in this market. Take a look below to find five ways you can get started in real estate investing today.
1. Become a Landlord
If you’ve ever been a tenant at a rental property, you most likely never dreamt of being a landlord. Waking up in the middle of the night to fix a frozen pipe, exterminating pesky pests living in the attic, dealing with unruly tenants—being a landlord and owning rental property can be tough.
Taking the necessary steps to become a landlord, however, can mitigate some of these qualms. Taking the time to learn landlord-tenant laws, writing a great lease, and vetting applicants can give you peace of mind knowing your property is in good hands.
To become an effective landlord and maintain your property, follow these steps:
- Step 1: Find a property within your financial budget, get a business loan, and place a heft down payment or pay in full
- Step 2: Budget for extra costs, such as insurance, maintenance, repairs, tax, and licenses
- Step 3: Brush up on landlord-tenant laws and make sure you’re in compliance
- Step 4: Draft a lease that outlines requirements for living in your home, such as when rent is due, pet policies, and so forth
- Step 5: Market your property on a rental property listing site
- Step 6: Screen tenants with a comprehensive background check that gives you criminal, employment, credit, and housing history
- Step 7: Regularly maintain the property, such as the lawn, plumbing, and electricity
- Step 8: Stay organized with proper bookkeeping and accounting and keep records of everything
- Step 9: Consider hiring a property manager to take care of the nitty-gritty aspects of being a landlord
2. Start House Flipping
Another real estate investing option is flipping houses. Flipping homes usually entails buying a dilapidated or abandoned home that’s well below market value, renovating it so it becomes habitable, and renting it out to tenants or selling it for a profit. Home flipping is best for investors who like to stay busy and partake in DIY projects.
Flipping a home can be risky, but if done correctly, it can offer lucrative rewards. To begin, scour real estate sites looking for bargain properties. You want to keep the three L’s of real estate in the back of your mind at all times: location, location, location. Even if a property needs tens of thousands of dollars in renovations, if it’s in an attractive location, you can make some serious bang for your buck.
To flip homes for a profit, make sure you do your market research and make sure the home you’re looking at will attract a buyer fast. Then, secure financing before you begin flipping. Doing so will make sure you have the money to buy the house and then pay for the renovations. From there, find a team of contractors who can get the job done. Make sure you get appraisals from multiple contractors to see who will complete the job at the most reasonable price without sacrificing quality.
Once you’re done renovating, put the home on the market or look for tenants, and voila! All done. From there, you’ll be able to look for more houses to flip for a profit.
3. Invest in Real Estate Investment Trusts (REITs)
Real estate investment trusts, or REITs, allow you to invest in real estate without having to buy physical property. An REIT is typically a corporation, association, or trust that invests in real estate by buying mortgages or properties. They then sell shares on the stock market. REITs are similar to mutual funds. However, rather than investing in securities, they invest in real estate.
If you’re looking to invest in an REIT, you invest through publicly traded REITs listed on a major stock exchange. Or, you can purchase non-traded REITs through a broker, or purchase sales in an REIT mutual fund. Investors and financial planners can also help find the best REIT that works for you. Additionally, setting up a trust for someone to take over your investment is a hugely important step in this process.
4. Rent Out a Room in Your Home
Whether your kids moved out of the house and left you with an empty nest or you just happen to have a spare space, you may want to consider renting out. Today, there are plenty of lodge listing sites such as Airbnb, VRBO, and HomeAway. If you’re in an area that attracts a lot of tourists, post your spare bedroom on one of these sites. These sites are also great if you have vacation properties you only use a few months out of the year.
Another option is turning your home into a two-family home. Separating the first floor from the second floor will allow you to rent out one of those spaces to another family or person and make some extra money. Or, if you have a detached garage or guest home on your property, rent that out! With a few upgrades, a garage can become a cozy studio or one bedroom apartment for someone to reside in.
5. Purchase Commercial Property
If you don’t want to deal with some of the nuances that come with residential properties, consider purchasing commercial property. Commercial properties are typically retail buildings or office buildings that you can rent out to companies.
While this option is much more expensive, it can pay off in the long run. You may also want to consider looking for a partner to invest with to split the costs to make this option more affordable. With commercial property, lease contracts are often longer, which means you’ll have a steady income for a longer duration, and these contracts yield a higher income.
The Bottom Line
Investing in real estate can be risky, especially with the housing market crash from the last decade still ingrained in our thoughts and memories. However, the cost of homes have been continually rising, besides the years of the mortgage crisis, which means real estate investing can bring profitable results. There are many ways you can begin your real estate investing venture, such as becoming a landlord or investing in REITs. With these five ways to get started in real estate investing, you’ll be on your way to earning passive income in no time.
Samantha Rupp holds a Bachelor of Science in Business Administration and is the managing editor for 365businesstips.com. She lives in San Diego, California and enjoys spending time on the beach, reading up on current industry trends, and traveling.