Residential real estate investing was once a trade that only the wealthy could afford. Not many banks gave mortgages, or if they did, they usually had strict qualifications. Only the traditional means pervaded. Today, with the emergence of various financing methods and investment strategies, anyone can become a real estate investor. Mortgages have become widely available and less strict. REITs and the lease option, among many others, form residential real estate investing alternatives that have enabled many to take part in the business. If you are an amateur investor, our advice to you is to hold onto the rope, do it right, and keep pushing forward.
We have formulated a list of options in residential real estate investing that you could use today. You do not have to have a lot of money or any at all to invest in some of these. This has certainly advanced the market and has made it more preferable. While if you are planning to invest quite the money in residential real estate investing, then other methods we explain will double the earning that you would have otherwise made in the other traditional means. Explore below the best ways to make money with residential real estate investing, and unleash your skills.
Related: The Advantages and Disadvantages of Using Residential Property Management in Real Estate Investing
Become an Airbnb Host
Airbnb has now emerged as one of the top residential real estate investing methods used out there. It is essentially an online market place connecting renters and landlords together. It offers a peer-to-peer short-term rental service. Renters, or guests, are usually tourists or business travelers who not only look for accommodation but also for a hospitable and homey experience. As for the landlord, or host, he/she gets to make money to pay off for his/her property while enjoying the company and culture of others.
Airbnb, a new rental strategy, has been widely used by users across the world since its emergence. As an Airbnb landlord, expect to make a lot of financial gains, whether quickly or over the longer term. Expect a steep learning curve upwards as you get immersed in other cultures and traditions. Being an Airbnb landlord certainly exposes and hones one’s skills in guest service, finance, and marketing.
Prior to your investment in an Airbnb rental, it is important to understand Airbnb’s policy and hosting standards for listing a property, communicating with guests, maintaining the space, and providing necessary amenities. Need you not worry about managing and following up with renters, Airbnb third party platforms offer services that enable you to manage your rental property remotely.
Invest in Real Estate Investment Trusts (REITs)
Only introduced in the 1960s, the Congress created Real Estate Investment Trusts (REITs) to help individuals and give them the opportunity to benefit from income-producing real estate. Whether it is mortgage, commercial, or residential real estate investing, REITs offer a grand opportunity. Often compared to a mutual fund, REIT is a vehicle that invests in real estate through properties or mortgages. Traded on major stock exchanges, REITs allow anyone to invest in portfolios of large-scale properties through the purchase of stocks. In a REIT, big and small investors invest in a pooled, managed property. The investor will own a share of the value of the property while also earning income from leasing it.
Another advantage is that REITs enjoy extreme liquidity as listed REIT shares can be easily bought and sold, and operate under the same rules as other publicly listed companies. Additionally, listed REITs provide a stable income stream to real estate investors while receiving special tax considerations. For all real estate investors, big and small, we highly recommend using REITs as they also expose you to various fields in residential real estate investing, in particular, while making big gains.
Related: How To Perform A Real Estate Market Analysis
Subdivide an Existing Property
This method is only viable if you have already invested in a residential property. You can purchase a real estate property and divide and rent it into units, therefore making a lot more profit. Subdividing a property into several housing units has become increasingly popular over the years, and while it may be an optimal idea for many, it can be taxing and often unlawful for others. Laws concerning subdivision of property vary by state. To avoid breaking any real estate laws, we recommend that you search zoning regulations for the area. Contact your local area council or municipality, and inquire about the procedures for getting an approval. Plan accordingly, as council approval may take some time.
Invest through Rent to Own or Lease Option
The emergence of the various methods in residential real estate investing these days has enabled more people into the housing market. Lease option is, yet, another investment strategy that has been gaining a lot of popularity in the past decade or so. In a lease to own agreement, the investor gets to rent out his/her property for some predetermined period of time, while having the possibility of selling it at the end of the lease. When you lease to own your home, you allow for more people to afford purchasing your home. This means that more renters and contracts will come flowing in, so you can even adjust the price higher.
Related: What Are the Main Property Valuation Methods?
Typically in a lease option, sellers charge more money and thus generate more profit, given the adjustments they provide to buyers. The seller, while earning a monthly rental income, is comforted to know that the house has a potential buyer. However, if a buyer turns down a deal before or at the end of the lease, a seller gets to keep the option money. The option money is about 2-6% of the home value. Moreover, the investor keeps 25% of the monthly rental that the buyer paid that would’ve otherwise gone to the final purchase if done. Generally, in a lease option, the investor earns monthly earnings while enjoying assurance that the home would sell. If you’re keen on residential real estate investing and building equity, we recommend that you consider lease option.
Having explained the aforementioned methods, we hope that you have fully grasped the idea behind them. If you are a new real estate investor, we advise that you start with REITs, as they are less risky and require less money. If you are in a dire need of quick cash, Airbnb seems a legitimate method. It is important that you are careful throughout your method selection and any further steps. For more information about any of the aforementioned methods, visit Mashvisor.
