How to Invest in Real Estate

There are several ways to invest in real estate. Below are ways for you to consider and look into.

  1. Rental Property
  2. Real Estate Investment Trust (REIT)
  3. Flipping Houses
  4. Real Estate Investment Groups
  5. Online Real Estate Platforms

Rental Property

There are two types of rental properties:

  • Residential rental property
  • Commercial rental property​

Residential property

     A residential rental property is a home that is bought by an investor and inhabited by tenants on a lease or other type of rental agreement. Residential property is used for dwellings by rental tenants also known as occupants. 

     Residential property is property zoned specifically for living or dwelling for individuals or households; it may include single-family dwellings, condos, duplexes, triplexes, fourplexes and,  large, multi-unit apartment buildings.

     Residential rental property is an appealing investment to people due to the fact many people have firsthand experience with both the rental market as tenants or the residential real estate market as homeowners. This familiarity with the process and the investment makes residential rental properties more attractive than other investments.

     Residential rental properties can also offer monthly cash flow, long-term appreciation, leverage using borrowed money, and the certain tax advantages on the income the investment produces.

     There are some risk to residential rental property. The main one is that residential rental property is not a very liquid investment. Cash flow and appreciation are two main benefits of rental property, but if a property stops producing one or both it may become very difficult to cut loses out get out. It may become impossible to sell a struggling rental property because you will need to find a buyer who find value in the investment that you no longer have.

Commercial Property

     Commercial property is real estate that is mainly used for business activities. Commercial property usually refers to buildings that house businesses, but can also refer to land used to generate a profit, as well as large residential rental properties.

Commercial property has traditionally been seen as a solid investment. The overall returns of commercial real estate is higher than residential real estate, and some common headaches that come with residential tenants aren’t present when dealing with a commercial property occupants.

Real Estate Investment Trust

     A real estate investment trust  also known by the acronym (REIT) is a company that owns, operates, or finances certain income generating real estate. Similar to mutual funds real investment trust pool the capital of numerous investors. This makes it possible for individual investors to earn dividends from real estate investments without having to buy, manage, or finance any properties themselves.

     Real Estate Investment Trust were established by Congress in1960 as an amendment to the Cigar Excise Tax Extension. The provision allows investors to buy shares in commercial real estate portfolios. 

     Properties in a real estate investment trust  portfolio may include apartment complexes, data centers, healthcare facilities, hotels, infrastructure—in the form of fiber cables, cell towers, and energy pipelines—office buildings, retail centers, self-storage, timberland, and warehouses.

     In general, a REIT portfolio consist of a specific real estate sector. However, diversified and specialty REIT portfolios may hold different types of properties in those portfolios, such as a REIT that consists of both office and retail properties. 

     REITs are publicly traded on major securities exchanges, and investors can buy and sell them like stocks throughout the trading session. These REITs typically trade under substantial volume and are considered very liquid and solid instruments. 

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There are three types of REITs:

  • Equity REITs – make of the most REITs, these kind own and manage income-producing real estate. Revenues are generated primarily through rents an not by reselling properties.
  • Mortgage REITs – Mortgage REITs lend money to real estate owners and operators either directly through mortgages and loans, or indirectly through the acquisition of mortgage-backed securities. Their earnings are generated primarily by what is called net interest margin, which is the spread between the interest they earn on mortgage loans and the cost of funding these loans. 
  • Hybrid REITs – These REITs use the investment strategies of both equity and mortgage REITs. 

Flipping Houses

    There generally two types of house flippers. The first is the investor who buy undervalued properties and try to sell them for a profit with six months of the purchase. 

The second kind of flipper buys nicer properties and renovate them and turn around and sell them for a profit.

Real Estate Investment Groups

     A real estate investment group (REIG) refers to a business entity that focuses the majority of its efforts and capital on real estate. Real estate investment groups may choose to buy, renovate, sell, or finance properties. Real estate investment groups commonly buy out multi-unit properties, selling units to investors while taking responsibility for administration and maintenance of the property.

     Real estate investment groups do not qualify to be a real estate investment trust also known as REIT. Real estate investment groups focus the majority of their business activity on real estate, they are not necessarily subject to any specific real estate entity status or beholden to any specific type of operation. As such, they have flexibility to structure their business in different ways, and they can make real estate investments as see fit. 

     As such, real estate investment groups may engage in other business activities such as property financing,  flipping properties, leasing properties to clients or property management companies for a portion of rental income, or selling units of a property while maintaining control. In general, there are no specific limitations on the activities a real estate investment group can be involved in.    

Online Real Estate Platforms

     Real estate investing platforms are for investors who want to join others in investing in bigger commercial and/or residential deals. The investments are done by online real estate platforms, also known as real estate crowdfunding. It still requires investing capital, although less than what’s required to purchase properties outright.

     Online platforms connect investors who are looking to finance projects with real estate developers. In some cases, you can diversify your investments without much money.