Real estate investing is a well recognized strategy for bringing in large profits and building generational wealth. New investors entering the real estate game may, at first, think it’s difficult to add real estate properties to their portfolio.
Buy into a Real Estate Investment Trust
A Real Estate Investment Trust (REIT) is a company that owns various properties. These properties can be one of four types of real estate:
Commercial properties (retail spaces or office buildings)
Residential properties (apartments or hotels)
Industrial properties (warehouses, manufacturing centers)
Agricultural-purposed properties (farms, cooling facilities, packaging facilities, processing facilities)
There are many REITs to choose from, but there is one good rule to stick by when starting out: ensure that the REIT you are investing in is a public REIT. This means that the REIT is listed on a stock exchange like the NYSE, and can be purchased through a brokerage account.
Another thing to understand about REITs are the tax implications. REITs can earn an investor ordinary income, a return on capital, or capital gains. Each of these earnings are taxed differently. Each year, the REIT will provide a 1099-DIV explaining the breakdown between these three types of earnings.
Hot tip: You’ll only receive a 1099-DIV if you made more than $10 USD in dividends for that tax year.
To find a great REIT, there are a few quick areas to consider:
Sponsors with a good reputation (the person or entity that forms the REIT)
Good location of the properties within the portfolio (high quality properties attract high quality tenants)
A portfolio that shows growth in the “funds from operations” (FFO)
A good track record of providing reliable distribution of dividends.
The tenant profile will tell you how reputable the tenants are and how they are paying rent
Once you have found a REIT that you’d like to invest in, use a brokerage account to purchase shares. This is a fantastic way to diversify your portfolio without the requirement of large amounts of capital to get started!
Use Online Fractional Real Estate Platforms
Another way to get involved in real estate investing with a small amount of capital. Unlike REITs, this method of investing allows you to own a slice of a single property rather than a share in a large portfolio fund, giving you the investor much more transparency into what exactly you’re investing in.
Investors in fractional investments can benefit from a property’s appreciation and monthly income. The best part is that fractional investing is available to anyone, not just accredited investors.
Fintor is a platform making fractional investing possible for new investors. With just $500, anyone can become an investor in real estate properties
Pretty cool, huh?
House Hacking is a term coined by Brandon Turner of BiggerPockets. It basically means that you purchase a property, rent out portions to a tenant, and benefit from other parts of the space for your personal use.
For example, you can purchase a multifamily property, like a duplex or a triplex, and choose one of the units for your personal residence. Then, you rent out the other unit(s) to tenants that bring in a monthly income.
Here are a few ideas to consider for a house hacking scenario:
Properties with finished basements
Properties with in-law units or Additional Dwelling Units (ADUs)
Properties with multiple bedrooms and adequate living spaces
House hacking has transformed many family’s lives by allowing them to live in desirable neighborhoods they otherwise could not afford. With high housing costs and economic issues in 2022, house hacking is something that can benefit you as an investor, and tenants looking for relatively cheap housing options.
When you’re looking for a potential property to use for house hacking, consider the following: available parking spaces, proximity to public transportation and commercial areas for employment, and safe neighborhoods with low crime rates and good schools.
Finally, if you are purchasing a multifamily home, consider neighborhoods with a mix of multifamily homes and single family homes. This attracts high quality tenants and ensures your property appreciates in value. As the single family home owners take pride in their own properties, they will maintain them accordingly and help the surrounding properties increase in value.
Short Term vs Long Term Rentals
Now that you have found a property that is perfect for your first house hack, you will want to consider renting it out short term versus long term.
Short term rentals are found on platforms like Vrbo and Airbnb. These are popular lease terms if you live in an area for tourism or close to a city business district attracting travelers.
For short term rentals, you must ensure that the local HOA or zone allows for short term rentals. Talk to a local real estate agent to confirm that your property allows for this type of short term lease.
Long term rentals are the normal 12-month leases that are extended to renters. This is great for suburban areas or purely residential locations.
Hot tip: If you live in a student-rich area near a local university, you may want to provide leases following the local class calendar year.
House hacking is gaining a lot of traction in the real estate investment community, and there are hundreds of resources out there to guide you.
Use Online Fractional Real Estate Platforms
If you think real estate investing might be for you, definitely check out some resources listed in our previous article, “How to Learn Real Estate Investing,” to continue your learning journey.
Real estate investors of all levels continue to learn and perfect their strategies and expand their portfolios. For new investors, take heart in knowing that any knowledge and experience you gain in this area will only benefit you and allow you to become a well-rounded investor.
Finally, consider trying each of the three real estate investment methods listed in this article. Diversifying your portfolio is a great way to reduce your risk during a recession and increase your earning potential long term.
Are you ready to begin earning passive income and building a diversified portfolio?