Over the recent past, the Real Estate sector has been attracting a lot of investors. Therefore, proper guidelines have been put in place to inform these investors on property investing basics. For instance, investors need to understand that they can own property by just paying a proportion of the asking price. In the US, the current down payment for mortgages stands at 20%-25%. However, a down payment of 5% is all one needs to buy property in some cases. Buying and owning a property presents the first phase of the investment process; collecting revenues is the other phase. This differs depending on the type of property investment one chooses to engage in, as shown in the breakdown below:
- Real Estate Investment Groups (REIGS)
- Real Estate Investment Trusts (REITS)
- Online Real Estate Investment Platforms
- Rental Properties
- Property Flipping
Real Estate Investment Groups (REIGS)
REIGs is a platform for investors who want to own property for rental purposes but don’t intend on running them. The investment group buys or constructs new homes and allows potential property owners to buy them through the company. As a result, they become part of the group. This means that the property management, maintenance, advertisement of vacancies, and tenants’ vetting is all done by the company. The property managers are entitled to a certain proportion of the monthly rent in exchange for these services. Nevertheless, the relevant property remains in the investor’s name. The risks involved here include having unoccupied houses for long or deceitful house managers who may not honor initial agreements.
Real Estate Investment Trusts (REITs)
REITs exist for the sole purpose of using investors’ money to purchase and run income properties. In this case, the properties are not limited to residential houses alone but offices, malls, and hotels too. Unlike REIGs, REITs practices are more formalized. Investors here do not need to have an agent or title investments to cash out their investments. Buying REITs puts investors in a better position to receive high dividends and is thus best associated with retirement. These investors also have a chance to reinvest their dividends to grow their investments. This is in cases where they do not want the regular incomes that come with them.
Online Real Estate Investment Platforms
These constitute various online property investment platforms specialized in connecting real estate developers with investors. Such investors take the risk of partnering with project developers seeking funding and investing in their projects. They hope to be earning a certain fraction of the total monthly rent when the developments are complete. This type of investment tends to be cheaper than other investments that involve property purchase. An advantage investors have in this scheme is that they can choose to invest in a single property or multiple properties. As such, they can invest within their limits or first decided to test the waters before dedicating more capital to the venture. They are also allowed to own property from different geographical locations. Limitations associated with online property investment platforms include high management costs and illiquidity during lock-up seasons.
Wonder what are the best cities to invest in?
This is the most common form of property ownership. Rental property managers need to have renovation skills and enough time to manage their tenants. Even so, rental property investors do need to put too much capital into maintenances. This form of apartment investment is advantageous because there is a regular income, and properties can always gain value over time. Rentals are also easy to manage, especially when owners are willing to adopt technological solutions like the rental unit management software. Additionally, it exploits more wealth through the use of leverage and contains several expenses that are tax-deductible. Still, property owners are disadvantaged because there is a possibility of reduced incomes resulting from potential vacancies. Also, maintenance costs are bound to go up due to possible tenant property damages. Management of tenants can also prove to be a tiresome exercise to the landlord.
Investors in this venture need to be very knowledgeable in property marketing, valuation, and renovation. House flipping demands a lot of capital and time to supervise all maintenances of the purchased properties. Flippers prefer buying properties at a lower price and selling them at hiked prices after doing renovations. One noticeable advantage is that house flipping ties up capital within a short period and offers rapid revenues. Related limitations to this type of apartment investing include a requirement to have vast market knowledge before venturing into it. Another disadvantage is that investors risk earning less the longer they hold onto their property because they also have to settle their mortgages.
A variety of factors determines the choice for a suitable real estate investment. They include:
- experience in the real estate sector,
- the person’s economic status,
- the geographical location of the properties,
- the type of real estate set-up available on the market.
Aspiring investors can consult various real estate agents to gain more insight on available and suitable apartment investing options.