Real Estate Investment for Beginners

Real estate has always been one of the most reliable wealth-building structures, as well as being a key element to building a diversified portfolio. There are multiple different strategies for getting started on real-estate investing. Some are more time-consuming than others, but all have a good potential to go from a decent side hustle to becoming a full source of income. One of the most common investment models involves becoming a landlord, which I’m sure doesn’t sound all too appealing to those of us who have actually had a landlord. However, there are plenty of other, more lucrative, options that don’t involve fielding calls from tenants with broken garbage disposals and overflowing toilets.

REIT’s

REITs are real estate investment trusts. They own or manage income-generating commercial real estate like office parks, apartment buildings, hotels, hospitals or retail spaces. They provide high dividend yields along with moderate long-term capital appreciation and are required to pay out 90% taxable income to shareholders. The majority of REIT’s are traded publicly on stock exchanges, offering more liquidity than most other traditional real estate investment models, along with the added benefit of being able to generate passive income.

As with all investments, REITs come with some inherent risks. Most REIT’s don’t meet the IRS definition of qualified dividends, which means that they’re usually subject to ordinary income tax. Also, when the Federal Reserve increases interest rates, REIT prices often fall. The risks associated with REIT investments, however, are relatively low compared to many other investment strategies, especially for such high dividend yields. 

Live-To-Rent

The live-to-rent model of investing in real estate involves taking up a home as your primary residence and renting it out to suitable tenants when you’re ready to move out. Lenders see investment units as high risk opposed to primary residences, as a borrower is far more likely to default on investment property property payments than they are for the payments on their own home. Where a primary residence mortgage requires 5% down on average and lower interest rates, investment properties require at least 20% down and higher interest rates. This method would involve moving somewhat often, but it does make it easier to get started on owning rental properties. As of now, an individual can have up to 10 mortgages in their name. With enough profit, you can hire a property manager to handle tenant complaints and requests, as well as to perform regular maintenance and upkeep of the properties, while still supplementing a full annual income for yourself. 

 

Flipping Homes

Flipping homes is one of the highest risk methods of investing in real estate, with the highest out of pocket costs if your strategy includes renovations and construction, but it has the potential to be among the most highly-profitable strategies. This is for those who have a strong background in real estate valuation, construction, marketing and management. Florida homes have seen excellent appreciation rates in the past few years. Data collected by NeighborhoodScout found that Florida real estate has risen 134.94% over the past decade, which averages out to an annual home appreciation rate of 8.92%. On average, most homes in the U.S. appreciate about 3.9% per year. Such high appreciation rates make it easy and lucrative for some investors to simply buy, hold and sell homes at a later date. If you’d like to see a quicker return on your investment though, you’ll need to add value to the home through renovations, which will increase the amount of money you’ll initially need to put into the project, but increase future profits by huge margins. You can maximize your profits with a strong knowledge of what makes a home valuable. For example, a study by Zillow found that homes with charcoal gray or black doors sold for $6,271 more than expected on average. That’s pretty good for a $30 can of paint! However, Zillow also found that homes painted yellow sold for about $3,000 less than expected. Look to our previous blog post about what renovations add the most value to a home to learn more about what you can do to get the most money for your home. 

 

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#1 By Tammy Lowe at 9/23/2022 4:59 PM

Posted 09/23/2022

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