Developing an asset through owning a real estate is an investment strategy that can be both comforting and lucrative. Real Estate investments are considerably more profitable as real estate buyers can use leverage to buy a property by funding a portion of the total cost upfront, then clearing off the balance, including interest, across the time.
Normally mortgaging for an asset usually requires a 20% to 25% down payment. But in some scenarios, a 5% down payment is enough to purchase an entire property. This capability to maintain the asset the moment papers are signed encourages both real estate flippers and landlords, who take out other mortgages on their homes to make down payments on supplementary properties.
Here are five simple ways through which investors can earn profit in real estate.
After purchasing a rental property, the buyer who has do-it-yourself (DIY) and renovation skills, and has the patience to manage tenants, gets an excellent opportunity to showcase their abilities. However, this strategy does require substantial capital to finance up-front maintenance costs and to cover vacant months.
As per the International Monetary Fund’s (IMF) last estimates2, India’s residential rental market was worth more than USD 20 billion, of which 68% or USD 13.5 billion is in urban areas.
- Renders regular income and properties can comprehend
- Maximizes resources through leverage
- Many tax-deductible associated expenses
- Can be tiresome managing tenants
- Possible damage on the property from tenants
- Decreased income from potential vacancies
Real Estate Investment Groups
Real Estate Investment Groups are most fitting for people who do not want to avoid all the hassle that comes with owning a rental property. Investing in REIGs demands a capital cushion and access to financing.
These investments are like small mutual funds that fund to buy rental properties. In a conventional real estate investment group, first the company purchases or builds a set of apartment blocks or condos. Then allows investors to purchase them through the company, thereby joining the group.
Just one investor can own one or multiple units of self-contained living spaces. But the company operating the investment group collectively manages all of the factors like handling maintenance, advertising vacancies, and interviewing tenants. In the negotiation for conducting these management tasks, the firm takes a small percentage of the monthly rent.
You’ll receive some income even if your unit is empty, as long as the vacancy rate of pool units doesn’t spike too high, there should be an adequate amount left to cover the costs. This amount comes from your real estate investment group lease. All of the units pool a portion of the rent to guard against occasional vacancies. And all of it comes to you as the lease is signed in the investor’s name.
- More hands-off than owning rentals.
- Provides income and appreciation.
- Vacancy risks.
- Similar fees as mutual funds.
- Susceptible to unscrupulous managers.
House flipping is the frequent option for the pro players. It is for someone with significant experience in real estate valuation, marketing, and renovation. House flipping entails capital and the ability to do, or oversee, repairs as necessitated.
Genuine property flippers often don’t advance in improving properties. Therefore, the investment must already have the inherent value needed to turn a profit without any alterations, or they’ll eliminate the property from contention.
There is one more kind of flipper who makes money by buying reasonably priced properties. They even add to value by renovating them. It can be a longer-term investment, where investors can only afford to take on one or two properties at a time.
- Ties up capital for a shorter period.
- Can offer quick returns.
- Requires a keen market knowledge.
- Hot markets cooling unexpectedly.
Real Estate Investment Trusts (REITs)
A real estate investment trust (REIT) is most suitable for investors who want portfolio exposure to real estate without any traditional real estate dealings.
A REIT is a result of the corporation using investors money to purchase and operate income properties. REITs are profitable for purchase and sell on the major exchanges, like any other stock. .
REITs are profoundly liquid because they are exchange-traded. In other words, you won’t need a dealer and a title transfer to help you cash out your investment. In practice, REITs are a more formalized version of a real estate investment group.
- Essentially dividend-paying stocks.
- Core holdings tend to be long-term, cash-producing leases.
- Leverage associated with traditional rental real estate does not apply.
Online Real Estate Platforms
Real estate investing platforms are for people who want to join others in financing in a larger commercial or residential deal. The investment made via online real estate platforms, also known as real estate crowdfunding. It still demands investing capital, although less than what’s required to purchase properties outright.
Online platforms unite investors who are seeking to finance projects with real estate developers. Sometimes you get the opportunity to diversify your investments with a small amount only..
- Can invest in single projects or portfolio of projects.
- Geographic diversification.
- Tends to be illiquid with lockup periods.
- Management fees.
When you decide to invest in the real estate market, two conditions are mainly upfront. First, real estate investors use their properties to generate rental income. It helps to bide their time until the perfect selling opportunity arises. Second, It’s possible to build out a robust investment program by paying a relatively small part of a property’s total value upfront. Similar to all other investment, there is profit and potential within real estate, whether the overall market is up or down.