Buying and owning real estate is an exciting investment strategy, that can be both satisfying and lucrative. Unlike stock and bond investors, prospective real estate owners can use leverage to buy a property by paying a portion of the total cost up front, then paying off the balance, plus interest, over time. While a traditional mortgage generally requires a 20% to 25% down payment, in some cases, a 5% down payment is all it takes to purchase an entire property. This ability to control the asset the moment papers are signed emboldens both real estate flippers and landlords, who can, in turn, take out second mortgages on their homes in order to make down payments on additional properties.
- Aspiring real estate owners can buy a property using leverage, paying a portion of its total cost up front, then paying off the balance over time.
- The four chief ways in which investors can make money through real estate are: 1) becoming landlords of rental properties, 2) real estate trading (a.k.a. flipping), 3) real estate investment groups, and 4) real estate investment trusts
5 Simple Ways To Invest In Real Estate
1. So You Want to Be a Landlord
Ideal for: People with DIY and renovation skills, who have the patience to manage tenants.
What It Takes to Get Started: Substantial capital needed to finance up-front maintenance costs and cover vacant months.
Pros: Rental properties can provide regular income while maximizing available capital through leverage. Moreover, many associated expenses are tax-deductible, and any losses can offset gains in other investments.
Cons: Unless you hire a property management company, rental properties tend to be riddled with constant headaches. In worst-case scenarios, rowdy tenants can damage property. Furthermore, in certain rental market climates, a landlord must either endure vacancies or charge less rent in order to cover expenses until things turn around. On the flip-side, once the mortgage has been paid off completely, the majority of the rent becomes all profit.
Of course, rental income isn't a landlord's sole focus. In an ideal situation, a property appreciates over the course of the mortgage, leaving the landlord with a more valuable asset than he started with.