The wealthiest individuals in history have been investors in real estate. Investors can hold property, build wealth and earn rental income while also enjoying operating leverage and tax benefits.
there isn’t much of a difference between your neighborhood real estate investing millionaire and you? Learn how to make real estate wealth.
What does it mean to invest in real estate?
Real estate investing is investing money in an opportunity that will yield a higher return than the money invested. This includes lending money to finance a property transaction and buying residential or commercial real estate properties.
The real estate market is open to all. That is why so many people – with the right skill set – can create generational wealth investing in real estate.
How To Create Wealth Investing In Real Estate: (5 Strategies)
1. Wholesaling and Flipping
House flipping and wholesaling are two of the most tried-and-true active strategies for real estate investment. Wholesaling is an investment strategy whereby the wholesaler connects buyers and sellers of properties – comparable to a real estate agent’s job.
Wholesaling involves placing an order with a seller in distress at below-market prices, and then finding a buyer for the cash or an accredited investor who is interested in taking over the purchase contract.
The wholesaler usually will include an assignment fee in the contract. This ensures that he/she gets paid for the connection. Wholesaling can be a great way to build capital, and to learn how to locate properties that will allow you to invest in long-term real property investing.
Flipping houses is another active investment method that can help you build wealth over time.
Flipping properties is the act of buying a distressed property – usually off the traditional real estate market – and injecting capital into the project to rehabilitate the structure, aesthetics, and functionality of the property to increase its After Repair Value (ARV).
A few properties can be flipped or sold as a whole year to generate steady income and increase one’s net worth.
2. Renting a Property
If you are looking to make a long-term investment in real estate, investing in residential property is an excellent strategy. You can leverage rentals properties to create financial freedom, whether you’re looking to buy multifamily property in Plano Texas, or an office building located in Tallahassee Florida.
Owners can benefit from passive income provided by renters. The owner will have more cash than annual expenses, so they can utilize their Return on Investment (ROI), or use equity to invest in other deals.
A second option is to leverage rental properties. There are a few benefits to leveraging a property using bank or hard money debt.
Tax-deductible expenses include interest rates. A loan secured by your property will allow you to balance the rental income with the interest paid by the bank.
Leverage allows you to reduce the amount of down payments required for a transaction. A fraction of equity can be put down to gain capital access. Later, you’ll be able to pay off that debt and carve out equity for more investments as the property’s value appreciates.
Real estate rentals have the last advantage of appreciation. Inflation causes the U.S. dollar’s purchasing power to decrease over time. By plowing your hard earned cash into properties, as the U.S. population grows so will your property’s value.
“Everytime I get money, I go broke again because I shove it into this real estate thing.” – Grant Cardone
3. Private Equity Funds: Invest in
Private equity fundsThey are investments vehicles that can be used to buy larger real estate properties. Oftentimes, individual investors don’t have the bandwidth to acquire multi-million dollar properties. This problem can be solved by private equity sponsors.
You don’t have to put $50,000 in a single family house. Instead, invest $50,000 in a pool of investors capital that will help you purchase a multi-family $100,000,000 portfolio. You’ll also have institutional backing and a management team that has experience operating large properties.
4. How to Invest in REITs
You can also make passive income by investing in real estate with REITs. REITs are publicly traded investment vehicles – also known as Real Estate Investment Trusts – that trade on the stock market. REITs are a great way to diversify your nest egg and take advantage of a variety of geographic assets.
You can literally purchase 100 REITs for $100. These REITs cover millions of square footage and thousands of properties across the 50 States. This directoryFor a complete list of publicly traded REITs, click here.
5. Investing in syndications
Participating in syndications is another great way to make money investing in real property. A syndication can be described as a fund that invests under certain criteria. You might be interested in investing $100,000 and want to take an active role. A syndication may be the best option.
Ten investors may pool $100,000 into a $1,000,000 syndication. You can use this money to fund larger deals that you wouldn’t otherwise be able to. You can be a more active participant in the syndication investment philosophy and management style – a benefit that is largely unavailable for private equity fund and REIT investments.
How to Choose the Right Real Estate Investment for You
Investors have different goals and challenges. An investor who is looking for fixed returns might prefer an investment with a different goal than one that is made by a single young person.
If done properly, flipping houses can give investors a 100% return within 6-months. But, permanent capital loss is more likely than investing in a REIT with consistent 8% yields.
Once you have a sufficient grasp of your overall risk appetite, budget, and view of the housing market, you’ll have a better idea of which real estate stream you should dip your toes in.
Benefits Of Investing In Real Estate
Tax benefits are associated with renting properties. Income benefits can be obtained by owning dividend-paying REITS. Additionally, appreciation benefits may accrue from flipping homes and using leverage. Most importantly, real estate investment as a whole has macro trends benefits.
There will be a demand for housing as the economy grows globally. The United States is – and always will be – the ultimate destination for opportunity. Real estate will continue to be required as long as this is true.
The best way to make long-term financial wealth is through real estate investing. There are many options available for everyone, whether you’re looking to flip houses, invest in debt, run syndications or buy REITs. Just dive in!
Addicted 2 Success published How To Make Wealth Investing Real Estate.
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