Are you a beginner real estate investor with little or even no experience at all? Are you wondering which types of real estate investments suit you as a novice investor?
Real estate investing is a very diverse business with opportunities that match every investor’s needs. However, success in real estate investing depends greatly on the two pillars of investing: education and dedication (and luck of course). Don’t worry, even the most successful real estate investors were in your place at a point and needed guidance to start. In this blog, you can find the best types of real estate investments for beginner and inexperienced real estate investors.
Long-term real estate rentals, also known as traditional rentals, are rental properties that are purchased and rented out for a long period of time. Long-term rentals are probably one of the most common types of real estate investments, which makes them a favorable choice among beginner real estate investors. The long-term investment strategy is also known as buy-and-hold, where an investor purchases a real estate property with the intention of holding on to and usually renting it out to profit from it over a long period of time.
A long-term real estate investment can be beneficial in multiple ways:
- Monthly income: if rent collected from tenants covers the costs of the investment, then you got yourself an income producing property that pays for itself.
- Appreciation: investing in a real estate property in a good location can guarantee a steady increase in its value over a long period of time.
- Leverage: you can leverage the existing equity in your long-term rental investment to take advantage of home equity loans.
Choosing the right real estate property is the key to success when buying a long-term rental property. Look for properties in safe neighborhoods with good schools, shopping facilities, and accessibility to points of interest. As a beginner real estate investor, it is advisable that you start small and invest in single-family units rather than multi-unit buildings. Multi-units can be a wise purchase because they can still generate rent even if a unit is vacant, but they require intensive management, which makes them more suitable for experienced real estate investors.
Out of all types of real estate investments, this one might be the most attractive to beginner real estate investors. Since the launch of Airbnb and other short-term rentals platforms, this type of real estate investment has been attracting more and more property investors looking for high returns in a shorter period of time. Airbnb rentals are considered one of the best types of real estate investments, especially for novice real estate investors, for the following reasons:
- Higher profit: Airbnb rentals generate more profit than traditional rentals as prices of short-term rentals are usually higher.
- Flexibility: With Airbnb rentals, you can choose when to rent out your property and what price to ask for it.
- Location: Having a great location pays off! If you invest in short-term rentals, then your tenants would most probably be tourists. Therefore, having a property near tourist attractions will guarantee higher vacancy rates.
Fixing and flipping real estate properties is simply done by finding an underpriced property, renovating it as inexpensively as possible, and then reselling it for a profit, within the shortest period possible. The longer you hold the flipped property, the less money you are going to make since you are paying the mortgage without making any income. When compared with other types of real estate investments, fix-and-flip is riskier for beginner real estate investors but profitable. A big element of risk is due to mismanagement of the flip process, more specifically, inaccurate estimation of the renovation costs, which can turn a prospective profitable project into a failed one.
Real Estate Syndication
Real estate syndication is an effective way for real estate investors, especially beginners, to pool their financial resources and expertise to invest in real estate properties that are often not affordable or difficult to manage on their own. Real estate crowdfunding platforms made it easier for real estate investors to access syndicated investments. The most beneficial reason for beginner real estate investors to consider investing in real estate syndications is the ability to invest completely passively, which means that as a real estate investor, you are completely removed from the management and operational perspective of the investment. Additionally, real estate syndication is one of the types of real estate investments that gives you access to large investment opportunities and exposure to a diverse range of real estate properties.
A REIT, short for real estate investment trusts, is a form of corporation that uses investors’ money to purchase and manage income generating real estate properties. The main benefits of investing in REITs over other types of real estate investments is the ability to be a passive investor, just like real estate syndication. Moreover, REITs are obliged by law to pay 90% of their profit as dividends to shareholders. Investing in REITs is also easy and not complicated, you can buy shares of publicly traded REITs through an online broker. For that, you only need a brokerage account.
Real Estate Wholesaling
Real estate wholesaling is when a real estate investor puts a property under contract with the aim to transfer the contract to another buyer within a deadline. When compared to the above-mentioned types of real estate investments, wholesaling gives the advantage of investing in real estate without cash and the ability to make a profit within a short period of time.
The Bottom Line
Investing in real estate is a great opportunity to make extra money, or it can even become your career. Above are the best types of real estate investments that are suitable for beginner and inexperienced investors. Follow Mashvisor for more in-depth information about real estate investing.
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