Investing in rental real estate stretches far beyond the common thought of simply purchasing an investment apartment building or renting out your old single family house. While that method still works great, not everyone wants to nor can afford to invest the large amounts of time and capital needed to successfully undertake a rental property project. Over the years, creative ways to invest in rental real estate beyond simply purchasing physical properties have gained popularity. Nowadays, there are many types of rental real estate investments that provide exposure to the lucrative profit potential of real estate as an asset class, without the physical labor and large sums of capital often associated with it.
Ground Up Development
Ground up real estate development is a form of high-risk and high-reward real estate investing. The process involves taking raw land and building a completely new structure on it. While it may sound simple, it is actually one of the most resource intensive types of real estate investing endeavors. The good news about this type of investment is that when done correctly, can yield substantial returns as well as a newly built property that requires minimal maintenance.
Buy and Hold
One of the most tried-and-true forms of real estate investing is simply called “buy-and-hold.” Buy and hold refers to a long-term real estate investment strategy where an investor purchases a property, rents it out, and continues to hold it for an extended period of time. Benefits of this strategy include monthly recurring rental income and property value appreciation; while disadvantages include limited liquidity, property management, and long term commitment.
BRRRR (Buy, Rehab, Rent, Refinance, Repeat) is an acronym for a popular real estate investing strategy which involves purchasing a distressed property, adding value by rehabbing, placing new tenants, cash-out refinancing, and repeating the whole process over again with more properties. The method combines the best of both worlds as you capitalize on the forced appreciation as a house flipper would, while acquiring a cash flowing rental property to build equity over time like a buy and hold investor would.
House hacking has been around for decades, however it only recently received its trendy name. House hacking is simply the act of renting out part of your home to generate income. As it has grown in popularity, so has the other creative ways to house hack which now includes renting individual rooms, parking spaces, and even ADUs. When done correctly, house hacking can allow for free or reduced cost living, while generating positive income through home ownership.
Fix and Flips
Contrary to popularized television, fix and flips are actually a very intense process that requires great coordination to pull off a profitable flip. The fix-and-flip process involves purchasing a distressed property, renovating it, then selling it at a profit. When done correctly, it can be a great investment tool for experienced real estate investors looking to generate large profits in quicker timelines than types of real estate investments.
Real estate wholesaling involves finding an owner who is willing to sell their property for less than an investor is willing to pay for it, then resell the contract to purchase to an investor. Unlike traditional buy-and-hold investing, wholesalers never actually go through the arduous process of completely buying the property. Instead, they get the property “under contract” and then sell that contract to an investor at a higher price than they paid the property seller. The difference is pure profit for the wholesaler.
Private note investing in real estate is a strategy where investors lend money to real estate investors or developers, secured by a mortgage or deed of trust. The investor earns a return on their investment through interest payments and principal repayment. This strategy can offer investors a passive investment opportunity, as they do not need to actively manage the property or take on the responsibilities of property ownership.
As the name implies, turnkey investment properties are those that are in overall good condition, and already rented out or move-in ready for a tenant. Some companies take it a step further and may already have a property management company in place. By opting for turnkey rental real estate investments, investors can sidestep some of the risks and burdens associated with traditional real estate investment strategies, and eliminate the need to conduct any hands-on work on the property itself while still reaping the rewards of rental real estate.
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Triple Net (NNN)
Triple net (NNN) investing is a type of real estate investment, wherein investors purchase rental properties where the lease agreements stipulate that the tenants are responsible for all property-related expenses (i.e. triple nets). These triple net leases involve the tenant paying all associated fees such as property taxes, insurance, and maintenance costs on top of their rental payment. Usually found among retail commercial properties, these leases can be backed by a corporate guarantor (e.g. Starbucks) which adds an additional level of security to the investment.
Real estate syndication is the process of using investor pooled capital to purchase and reposition real estate, and they usually follow a repeatable process: Origination, Operation, and Liquidation. In a syndication investment system, there are always two main parties: Sponsor(s) and Investor(s). The Sponsor, is the individual or company that acts as the overall manager for the deal. The Investor’s role in real estate syndication is to simply provide the capital that the Sponsor will use for the deal.
Real estate crowdfunding has revolutionized traditional real estate investments by giving individuals an opportunity to invest in larger properties they would have normally been unable to afford on their own. With crowdfunded properties, investors pool their money together and invest in shares of different properties, allowing them to diversify their portfolio without the need for a large capital investment.
Fractional ownership real estate investing offers property investors the opportunity to purchase fractional ownership, usually in the form of a fractional share, of specific real estate. This model permits investors to spread out their investment risk across multiple sectors and areas, while still owning a fraction of one or more real estate properties. Fractional ownership also allows for fractional co-ownership with other individuals and all owners realize the shared benefits of advanced returns on their fractional investment.
Real Estate Stocks
Real Estate Mutual Funds
Real Estate ETFs
Real Estate Investment Trust (REIT)
Stock investing allows investors to gain direct ownership into promising companies. With real estate being intertwined throughout all aspects of the economy, the convergence of stocks and real estate allows for immense potential to leverage the ease of stock investing with real estate’s robustness. Since real estate is an extremely broad category, investors have countless options for companies to invest in. From the shopping mall owner and operator Simon Group (NYSE:SPG), to real estate software data and marketing companies such as Costar (NASDAQ: CSGP), there are plenty of options available for all types of investors. Within this topic of real estate stocks, are also 4 different ways to invest in real estate related stocks: Real estate related company stocks, Real estate ETFs, Real Estate mutual funds, and REITs.
While the concept of “Virtual Real Estate” might ruffle some feathers for older generations of real estate professionals, the concept is undoubtedly gaining notoriety especially with Metaverse real estate sales recently bringing in over $500 Million. Metaverse real estate can be described as unique parcels of virtual land, within a virtual world. The promise of these virtual parcels is that they are programmable and actually usable for a myriad of innovative use cases. Much like the physical world, these parcels can be used for socializing, hosting events, and digital real estate investors can even develop, flip or lease them.
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