You want to start with private real estate investing, but do not know how exactly. A real estate portfolio is one of the best income producing assets. And there are a few different ways of how to invest in real estate. We will lay out three different real estate investment strategies so you can pick the one that fits you best. But we will also reveal what many investors find to be the best path! Keep reading.
Investing in Land
Many people first think of buying land when they decide to go into private real estate investing. We sentimentally believe that owning land as our ancestors did is valuable. Unfortunately, nowadays investing in land does not mean money automatically. To be income properties, parcels of raw land have to be in use.
The main types of land by use are commercial, residential, industrial, and agricultural. Local zoning laws decide how land will be used. You can either buy land for a particular use and develop it, or try to re-zone it.
Here are some ideas about how to make money with land:
- Find cheap plots of land and sell for more (flipping).
- Buy on the outskirts of a city and wait for developers to come asking to buy it.
- Buy agricultural land and build a farm.
- Invest in residential/commercial land and develop it yourself.
However, to be able to make a good investment in land, you need to see where trends are going. Predict what kind of land will be hot in a few years, or in what direction a town will be expanding. That is why it might be a bit harder for a first try in private real estate investing.
Investing in a REIT
REIT stands for real estate investment trust. This is a company that gathers money from individual investors like you and invests in large construction projects or properties. It works much like stocks and you can buy them on public stock exchanges or through a broker. The idea is that you will be earning from income producing assets that you could never buy on your own. This includes hospitals, office and apartment buildings, hotels, shopping centers, and so on.
Some of the benefits of private real estate investing through REITs are:
- You do not have to deal with buying, selling, or property management. Everything is taken care of by the trust. It is the most hands-off of passive income investments.
- You get regular payouts of dividends.
- You can sell your shares whenever you want.
How to Invest in REITs
First, do your research or consult a financial advisor about the options for private real estate investing. Look into how the trust is managed and its records. A management team that gets paid based on performance is best because they share your interest to maximize earnings. Then, put between $1,000 and $25,000 in the one you choose as an initial investment. Keep in mind that the dividends you will be earning are taxed as income.
Private Real Estate Fund
A private real estate fund is a more exclusive fund. It also invests in real estate on behalf of its investors. The difference is that these are open for private real estate investing to people who can afford a minimum of $250,000 to join. You usually have to meet certain criteria to be approved: net worth over $1 million or a yearly income over $200,000 or couples earning $300,000 combined.
Investing in Rental Properties – The Best Path to Private Real Estate Investing
Owning rental property is probably one of the best investments you can make. If you are a beginner real estate investor, rental properties will get you a satisfying return on investment. It is straightforward to buy, own, and manage a property. Some of the advantages of this type of private real estate investing are:
- You can easily get a mortgage for investing in rental properties just like you would for a home. Or you can pay cash if you want.
- You can choose to invest anywhere for a better rental income. It can be a town or city with a more lucrative traditional rental market or a tourist destination with a high demand for Airbnb. To start looking for properties anywhere in the US, try Mashvisor.
- A short-term rental can double as a vacation home for you or your family.
- There are property management companies that can do all the work for you for a small fee so you really get a passive income.
- There is also the option to buy a rental property close to home and manage it yourself to save on costs.
Finding Your First Investment Property
How to find income properties? Look at the data!
When first starting out with this form of private real estate investing, all the data you need to consider can be overwhelming. You have to keep track of metrics, compare properties and locations, and calculate if you can even afford the investment. Spreadsheets are an option, but still inconvenient. Real estate analysis software like Mashvisor calculates all metrics and numbers for you, helping you see a clear picture so you can make a good investment. It pulls data from many real estate websites and crunches it to give you up-to-date reports on the US housing market and analyses of individual properties. With it, you can:
Research cities and neighborhoods to find lucrative areas to invest in. The real estate heatmap tool will help you decide where it is worth it to invest based on returns and prices. If you do not mind investing away from home, that is a good place to start your private real estate investing journey.
Search for investment properties for sale via the Property Finder fitting your criteria: location, budget, the rental strategy you want to use, type of property, size, cap rate, cash on cash return, etc. The Property Marketplace also lists foreclosures, which can be a great starting investment, and tenant-occupied properties, making your first time as a landlord easier.
Compare properties by metrics such as expected rental income, Airbnb occupancy rate, and monthly expenses. You can also upload a property to have it analyzed automatically. Mashvisor’s Investment Property Calculator gives you the estimated rate of return on a rental property and payback period so you can choose the positive cash flow properties. On top of that, it compares traditional renting to Airbnb so you know what you are doing even before you buy.
Related: How to Evaluate an Airbnb Investment
There are many ways you can start in private real estate investing, some easier than others. We recommend starting small with rental properties and using investment tools to make sure you are choosing correctly. After you have built your confidence as an investor, you can expand your real estate portfolio with more advanced assets like land or REITs.