JLM Blog | Different Ways You Can Invest in Real Estate

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Originally Posted On: https://jlmrealestateinc.com/blog/different-ways-you-can-invest-in-real-estate-today/

You’ve probably been told from a young age that investing early is one of the best ways to learn the market and to understand how to make educated decisions.

Furthermore, investing in real estate is key to diversifying your portfolio and thus highly encouraged as you learn the ropes. Real estate investors can see profits in four different ways, which means there are a number of reasons to invest in commercial real estate, REITs or other real estate investment groups.

Here’s are the different ways you can get started with investing in real estate in San Diego.

Okay, so you know you want to invest, but what exactly do you invest in? When you think about investing, you probably think about the stock market. When it’s real estate, what does it look like?

Here are four different categories of options that you can look into. While some are better than others for beginners, it’ll give you an idea of what’s on the table and which direction you may want to go.

The first way that you can begin investing in real estate is through commercial real estate property. In other words, you’d purchase commercial real estate and become a landlord.

Commercial real estate property may refer to retail buildings, office buildings, warehouses, industrial buildings, strip malls, shopping centers, and apartment buildings.

Commercial properties generally have a fairly high income potential when compared to single family homes. They provide an annual return of between 4 and 15 percent compared to 1 to 4 percent.

Thus, it makes sense to invest in a commercial asset.

Furthermore, there are benefits that occur with investing in an office or retail building.

While a landlord for an apartment building may be fielding questions at all hours, businesses typically have limited hours of operation, which means you won’t be constantly on call.

This is highly beneficial if you want to ensure you have a set work-life balance you can maintain.

But, the threshold for risk for office/retail buildings are much higher, because in a recession, they get impacted much more than the recession resistant apartment complexes. Vacancy rates for office/retail buildings are also higher than apartments as well.

No matter how bad the market crashes, people still need a place to live.

Flipping occurs when an investor purchases a property with the intention of fixing it up and selling the asset for a profit. There can be quite a bit of risk versus reward that occurs during this process, and it isn’t always the best investment strategy for everyone.

Real estate trading requires good relationships, plenty of cash, knowing your market, knowing your numbers, and the correct after repair market value. You have to know the market and understand your financing options. If you can do this, then you have a lot of potential on your hands. Always remember that you make your money on the BUY.

Overestimate your expenses, never underestimate your rehab costs.

Flipping is something that requires a lot of research, experience, good relationships with a contractor and brokers, so it is always smart to find a mentor to lead you the way in this field of real estate.

It is also smart to team with a small who all have different strengths. Having an acquisitions manager, an analyst, a project manager, and a broker on your team is a great way to systemize your investment vehicle.

Real estate investment groups, or REIGs, are entities that buy, renovate, sell or finance real estate properties. This is a more low-maintenance approach to investing compared to real estate trading or investing in commercial real estate property.

In this scenario, the REIG buys out a property and sells units to investors while taking responsibility for administration or maintenance of the property itself.

The group itself is comprised of multiple partners or shareholders. It may opt to invest in apartment buildings, rental homes, multi-family homes or other commercial real estate properties.

What’s great about this option is that you’re essentially combining your resources with the resources of other individuals looking to invest in the same type of property. If you’re not able to invest in a property without other partners or stakeholders, then this is your solution.

REIGs also offer learning opportunities so that you can grow in your knowledge of investment and understand the market better. If you’re a beginner, this isn’t a bad way to go.

It is worth knowing that there can be membership fees, and emotions can come into play wherever other people and money are involved. Remember, you’ll be dealing with numerous other personalities when it comes to investing your money, so you won’t be able to make a decision entirely on your own.

If you’d need to pull your money out for emergencies, that isn’t always possible and it’s something to keep in mind.

REITs are a little bit different because they’re created when a corporation or a trust utilizes their investors’ money to purchase and operate properties.

They’re essentially dividends-paying stocks which could be a pro or con depending on the way that you look at it. They have long-term, cash producing leases, but they also don’t provide the same leverage that traditional real estate does.

This option may be for you if you want your portfolio to have real estate exposure without a true real estate transaction. In other words, it probably isn’t the best place to start for beginners.

Yet, they’re still a solid option to know about as you begin to learn more about your options in investing.

As you begin to delve into this area of investing, feel confident that there are a lot of reasons that it can help you. Markets will continue to move up and down, but real estate will always exist.

People will always need somewhere to live and somewhere to run their businesses.

While there are often fluctuations, the general trend is always an increase decade to decade.

This means that you can take advantage of appreciation, having your tenants pay down your principal, and tax advantages that exist when you invest in real estate (depreciation).

Your ability to create additional income for yourself can contribute to our bottom line.

Whether you’re interested in becoming a landlord of an apartment, a multifamily or a commercial real estate building or taking a more hands-off approach with a real estate investment groups, there are benefits to investment in all of the above.

Final thoughts

There are many ways to get start with investing in Real Estate, and nowadays with advanced technology, you can start investing with very little money down.

You can never go wrong with investing in apartments, because even in the worst of times, people will always need a roof over their heads.