August 18, 2016

Rental House
3 ways to invest in real estate.
3 ways to invest in real estate

The three most common ways people invest in real estate are through homeownership, REITs and ETFs, and direct investment.

How to Invest in Real Estate

There are a ton of different ways to invest in real estate. In fact, I generally say that it’s possible to be successful in ANY niche in real estate.

…Just not all of them.

So, figure out how you want to invest, then focus on that. Don’t try to do everything or you’ll find yourself not doing well at any of them.

Invest in Real Estate With Home Ownership

The true costs of owning a home are often forgotten until after closing on the property. Owners should remember they need to spend anywhere from 1-2% of the value of the property on maintenance and upkeep.

Home ownership definitely has much lower returns than the stock market, in fact, returns are near 0% once inflation and maintenance are taken into consideration.

But there is one way to turn your home into an investment, and it’s called doing a “live in flip” or also “house hacking.”

House Hacking

You start by buying a home that is a bit run down, but it’s in a nice neighborhood. The goal is to do improvements over the next 2-3 years then you can step up to something nicer, or do it again.

Once you’re done with the work and ready to go, you can either sell it and pocket the profits (usually for no tax, as your personal residence is generally not taxed). You can also keep it and use it as a rental property if you’d like.

I started in real estate with the stepping stone approach. My first property was a 3-unit multifamily near my grad school. We rented two units and lived in one for free.

After a couple of years, we moved to a townhouse and rented out all three units. Then, a few years later, we moved out of the townhouse and into something nicer.

Each time we moved, the rent on the previous unit paid most of the cost of the new one. So, we were never coming out of pocket very much to make the transition.

There are a lot of different strategies to use your home to invest, here is another.

Airbnb and Short Term Rentals

Another way to turn your house into a cash machine is to rent out individual rooms. This is an especially useful option for younger people or families without children.

Buy a house with more bedrooms than you really need. You can even convert an attic or basement into a bedroom.

Then, get some roommates and rent out each room. Their rent will most likely cover all of your mortgage and utilities.

Another option is to use Airbnb. If you’re in a good area that people need to visit, you can earn a lot more per month than having a normal roommate.

Crowdfunding Real Estate

This is relatively new, but it’s becoming bigger and bigger every year.

Basically, you are investing a small amount of money into a larger deal and sharing in the risks and the rewards.

While people have been doing this for a hundred years in a more private way, it is very new to the internet.

The benefit is the best crowdfunding platforms do a lot of due diligence for you and that helps weed out the bad deals. Some of the platforms are limited to accredited investors, but others accept both accredited and non-accredited investors.

In case you are wondering, an accredited investor is someone who earned $200,000 ($300k if married) and has a reasonable expectation to continue earning that. Also, a net worth of $1m or more (excluding your primary residence) also qualifies you.

My favorite sites are Fundrise and EquityMultiple, both of which are unique and well established.

A couple sites let you invest in some deals for as little as $1,000 which is awesome. Most sites require $5,000 – $10,000 which is still good. A few require $20,000 or more which is more in line with what a standard syndication requires.

REITs and ETFs

A REIT, or real estate investment trust includes a huge array of offerings and can include investments in every niche in real estate. The requirement to be a REIT is it must distribute 95% of its earnings to shareholders.

It also has to pass a number of other tests in order to maintain its status as a REIT.

With exchange-traded REITs, you can theoretically buy just 1 share. but there are also private REITs with massive minimum payments which is why the minimum investment has a question mark next to it.

The great thing about a REIT is you can easily get some exposure to real estate in your portfolio. Simply buy into it with your brokerage account just like you would with any other stock or bond.

You’ll find that you could earn better returns if you invested directly into real estate yourself, but there is a tradeoff between time/convenience as well as the effort required.

Though you technically may own a portion of the real estate, you have absolutely no say in how it operates. You can’t decide on what real estate you buy or how it’s managed. You can only vote with your feet and sell your shares and move on.

There are 3 types of REITs – Private REITs, public exchange-traded REITs, and public non-traded REITs.

Directly Invest in Real Estate

People are afraid of this because they don’t want to “fix leaky toilets” or any number of other excuses.

Who wants to fix toilets? I don’t even think plumbers like to fix them.

The reality is direct investments can be as active or passive as you want them to be. You can actively manage your property, or go a more passive route.

So, you can fix toilets if you are hands-on, or you can just hire other people to do it.

The greatest benefit to directly investing in real estate is that you can leverage your returns. Also, you can find way better deals to invest directly in than in any other form of investing.

Additionally, you can choose exactly what you want to invest in and what you don’t want to invest in.

Lastly, you can decide which properties to invest in and which ones to skip. You can also decide how to deal with problems or let someone else figure it out. You have a high degree of control.

The key to this is to first, determine your niche in real estate.

Once you have that figured out, you need to learn the ins and outs of real estate.

Then, it’s time to make offers and buy some property!

About the author 

Eric Bowlin

Eric is an investor that achieved financial independence at the age of 30. He started in 2009 with the purchase of his first triplex and now owns over 470 rental units. He spends his time with his family, growing his businesses, diversifying his income, and teaching others how to achieve financial independence through real estate. Eric has been seen on Forbes, Trulia, WiseBread, TheStreet, Yahoo Finance and other financial publications. You can contact Eric by emailing him at [email protected] or with this contact form

  • I love the infographic at the beginning of this post. That’s awesome! And thanks for sharing this great list of ways to invest in real estate. Finally, congrats on not celebrating Labor Day! Once we’ve both dominated financial independence we’ll have to meet up and have a non-Labor Day BBQ. 🙂

  • Hello, I wish the infographic was up… 🙁 at the same time, I like the idea of no maintenance investing. Its cleaner and stay sane by knowing that I will receive monthly check regardless… No chasing bad tenants.

  • I love the infographic! It is easy to understand and full of good information. I like how you broke it down into the different investments and listed the pros and cons. Thanks for sharing!

  • Good morning,
    an old trick when have when you have cash, you invest in stock and other financial product and you take a credit to buy a house (in many country, I’m from France, the standard credit are fixed credit.) So it will be very interesting in this case.
    crowdfunding immobilier recently posted…Investir à MetzMy Profile

  • Hey Eric

    I benefited a lot from your tips.
    The field of real estate investment is the best way to make money, you can get a wealth of this field, but not that easy, it requires hard work, and renewable plans, widely thought, and most importantly is the deep study before starting in this field.
    anyway, thank you again for sharing your thoughts, keep up the good work.

  • A real estate agent is one who maintains the link between a buyer and a seller. He has the list of all the properties that are on sale in the area of your choice and he can get the right property deal by creating a mutual benefit for all the respective parties.

  • Just brilliant writing so far regarding investing in real estate! I appreciate this type of writing which post is really helpful for others. Thanks and keep up the great work.

  • Hi Eric,

    Great article, short and it covered everything. Loved how you pointed to the benefits of direct investment, which can be hectic but the return you can get from it cannot be ignored.

  • Great tips Eric! The information you have provided on how to invest in real estate is really helpful and impressive to me. Thanks for sharing such an informative post and I really appreciate this one. Keep posting like this.

  • Incredible article, short and it secured everything. Cherished how you indicated the advantages of direct venture, which can be boisterous yet the arrival you can get from it can’t be overlooked.

  • Before investing in real estate you should have some knowledge about it, I want to invest in the property, therefore I am reading many articles. The various ways you have appeared in this article is going to very helpful for everyone who is thinking to invest in real estate. Thanks for valuable tips!

  • Hey! 🙂

    Awesome share this is, I am actually planning to buy a property since last month but was so much confused about which would be worth of investing upon. Reading your article I suppose I can take help from my relatives on this.

    Thanks alot & keep sharing 🙂

  • When you invest in residential real estate, you are getting more than a home or a piece of land upon which to build a home. Real estate investment has become a popular way for people to make money, and it is not uncommon to buy a house or land without any intention of living there. Some people simply buy and hold property, waiting for it to appreciate in value before re-selling it. Having cash for a down payment is the quick and easy way to enter the real estate market, but it’s not your only option. Many people have found ways to start investing in real estate with little or no money of their own. Options include borrowing money as well as a number of more unusual and creative paths to ownership. This article explores some of those paths.

  • A real estate agent requires skills and the drive to be successful. You also need to get the right education, an established broker, and the licenses. There really is a lot to this craft, and you have to be serious about it before you jump right into it.

  • It is important to know if how we started to invest in real state business. Specific knowledge must be known for those in the first time of real state investment. Focus and perseverance is the key.

  • Really helpful article. I’m a real estate enthusiast from Dubai. Looking forward for more such interesting topics and Eric would love to connect.

  • Thanks for these tips as I am in a plan to invest in real estate the tips are helping me a lot. Kindly help with more such informative articles like this.

  • Thanks for giving me the idea to choose a run-down house as my first purchase in real estate. Money is not the case for me. It’s just because I don’t want to invest a lot given that I’m not experienced in this market. Maybe I should also consult an expert in real estate law before buying any property to ensure that I’m not violating any state laws.

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