It’s not uncommon for an investor to consider adding real estate to their portfolio, and while buying a rental property might be the first thing that comes to mind, being a landlord isn’t for everyone. Dealing with renter concerns, collecting rent, and possible evictions is often not an attractive proposition for would-be real estate investors.
Consider these five ways to invest in real estate as an aternative:
- Buy A Home To Resell Right Away
Sometimes called “flipping”, this generally involves finding a great deal on a home, likely one that needs at least cosmetic improvements. The goal is to make some improvements to the property and sell it soon after the purchase for a profit. This strategy is generally more effective when real estate prices are rising and homes are selling quickly. During a downturn in the market the bargains can be easy to find, but the buyers may not be.
- Live In The Investment
Investors with less of an appetite for risk, and fewer funds to put on the line can take the “long term flipping” approach. Buy a home in need of renovating or updating, do the work over time while living in the home, sell it a few years later for a profit and move on to the next project. Because the owner is living in the home they don’t also have additional living expenses, and the property can generally be financed with a primary residence mortgage which is likely to have a lower interest rate than an investment property loan. The downside is living in home full of in process projects, and frequent moves.
- Purchase A Vacation Property
Make the most of a long term real estate investment by buying in a place you love to visit. As the home appreciates (hopefully) over the years you can also enjoy creating family memories there. Income from short term vacation rentals may be able to offset some of the cost of the home financing and upkeep. Many vacation property owners work with property managers to help them maintain and rent their properties.
- Invest In A Real Estate Investment Group
Real estate investment groups work by pooling the funds of multiple investors to purchase and manage investment properties. A portion of the rental income will go towards management fees, but there is generally some downside protection as funds are set aside to cover short term vacancies.
- Invest In A Real Estate Investment Trust (REIT)
Essentially a mutual fund for real estate, a real estate investment trust may introduce even more diversification into an investment portfolio as they are often not limited solely to residential properties. The REIT must pay 90% of the taxable profits to its shareholders providing a continual flow of income when successful. Though the investor is very removed from the day to day real estate operations, an advantage is that it is easy to cash out of the investment by selling the shares in the REIT, rather than having to find a buyer for a piece of property.
It is important to understand that any investment carries some degree of risk. In addition, be sure to consult a tax professional and real estate agent for any tax or legal implications of any real estate purchase, sale, or investment.
Need to Talk Yourself Out of Being a Landlord?
Interest rates are near historic lows. Home prices in many markets have not been this low in a decade. The US stock market is crazy and Europe’s looks even more out of whack. Your smart, savvy, and think that now may be the time invest in a rental property. Bankrate.com’s recent Debbie Downer of an article may have you thinking twice about your decision. While this blog is geared for real estate investors, it never hurts to take a step back and determine whether you are a good fit for becoming a landlord. Bankrate.com’s author, Pat Curry, notes that vacancy rates are up (note..this may date the article a bit since rates are down in many places) which can lead to stress and opening up your own pocketbook to meet your monthly mortgage obligations. Mr. Curry also points out that applicant credit histories are getting worse. Considering the tightening of lending guidelines, less people are qualified to borrow money. This fact has pushed more people with less than stellar credit into the rental pool. Evictions and dealing with tenants who owe back rent can be a nightmare. Plus, the down payment for investment property loans is now considerably higher than it was just five years ago. Still ready to take the plunge?
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If you’re interested in purchasing and/or refinancing a rental property in the United States, you can connect with mortgage companies offering financing assistance using the rate tables on ForTheBestRate.com. Keep in mind that the interest rates and closing costs displayed in the rate tables are for primary residences. Rates for investment properties are typically higher.