Make Your Money Grow: 7 Ways to Invest in Real Estate Today

Owning a home can be a part of the American Dream, but a big part of that dream is simply building wealth and becoming more self-sufficient. Is real estate still a solid way to achieve that goal?

“The greatest wealth in our country has been created by buying and selling real estate,” says Melanie Hunt, a top-selling real estate agent in the Dallas-Fort Worth area.

Hunt, who invests in real estate herself, is a big proponent of investing in real estate, though she warns that investors must be careful. “I always pay at least 20% to 30% down on anything I buy,” she says.

“That way if the market sells down, you are still in an equity position. I’ve seen investors put no money down on rental properties, and the prices fell, and it wiped them out — they lost them all.”

Buying rental properties is a popular way to invest in real estate, but it’s not the only option. We’ve rounded up a comprehensive list of ways to invest in real estate so that you can begin investing in real estate today.

Source: (Micah Carlson/ Unsplash)

1. Buy and hold a rental house

One straightforward way to invest in real estate is to buy a house and own it for a few years or longer.

When you buy your primary residence, for example, you are buying and holding a house. But you don’t have to live in the home full-time to go this route; many investors will buy a house and offer it as a long-term or short-term rental.

“One thing we are seeing here is that people are buying homes specifically around Cowboy Stadium, and they’re doing it simply as vacation rentals like Airbnb,” says Hunt. “The majority of the penthouses here are being rented out like that.”

These short-term rentals usually pull in more money each month than long-term rentals, but investors need to take into account that short-term rentals come with more responsibility — namely, furnishing the rental, managing the bookings, cleaning the space, washing the sheets and towels, paying the utilities, and buying and restocking essential supplies, such as toilet paper.

Hunt points out people interested in investing in real estate this way need to be hyper-aware of the condition of the home before listing it as a rental. “The condition is incredibly important,” she says. “If you do an Airbnb, it has to be nice or they won’t pay you the money. You need to research the neighborhood. Investing is a full-time job.”

2. Fix and flip a house (become a flipper)

TV channels like HGTV have made flipping houses appear like an easy way to make money fast in real estate.

Without a doubt, there is money to be made in house flipping (the house-flipping rate reached a nine-year high in 2019, earning flippers an average of $60,000 per home before the cost of renovations). But there are a lot of costs associated with house flipping, too.

Before you dive into your first flip, consider not just the cost of the home but the cost of closing twice (as a buyer and seller), agent commission, the cost of materials, labor, taxes — and, of course, the cost of covering your mortgage as you work on the home. Flipping is also a high-risk investment because there’s no guarantee you’ll make your money back, so keep that in mind, too.

Whether you buy and hold or flip a home, investors today are funding their investment properties in creative ways. Some are joining forces with friends or business partners to scoop up properties in less-robust markets and holding them as long or short-term rentals. Others are investing with friends and fixing and flipping houses as a team.

3. Buy your own single-family house

Making any kind of real estate purchase is an investment, and that goes for buying your own single-family home. Depending on the market, single-family home prices generally appreciate in value, making them a great long-term investment. When you purchase your own single-family home, you are not only putting a roof over your head; you’re also building equity as the years pass.

You can make your home work for you in other ways, too. Many single-family homeowners will rent out a room in their home or convert their basement into a studio apartment and offer it up as a short-term or long-term rental. The money collected from renters can help pay down the mortgage faster.

A multi-family home that was a real estate investment.
Source: (Tatiana Rodriguez/ Unsplash)

4. Buy your own multifamily house

Savvy real estate investors understand the benefits and diversity of opportunities that buying a multifamily home provides. Many multifamily homeowners will live in one unit and rent the other units out, either to long-term renters or on the short-term rental market. Often, the rents collected on the rental units will cover the cost of the mortgage.

Another option is to turn multifamily units into condos and sell them to others. Doing this increases the value of the property overall, as individual condos will collectively sell for more than one single multifamily unit. In order to go this route, owners must first make sure their property is zoned for such a conversion.

There are tax benefits to owning an owner-occupied multifamily home, as well, as long as the multifamily home is four units or fewer (if there are five units or more the property is considered commercial and must adhere to a different set of rules.)

According to SFGate, the section of the multifamily unit that you live in is taxed as a single-family residence. In all units that are rented, the multifamily homeowner can write off all expenses incurred, including utility bills. The multifamily homeowner is also allowed to depreciate the rented part of their property. As Pocket Sense explains, the mortgage interest deduction is another great advantage to owning an owner-occupied multifamily home, as it allows you to deduct the interest part of your mortgage payment that relates to the section you use for personal use from your income.

Land used as a real estate investment.
Source: (Federico Respini/ Unsplash)

5. Buy and divide land

You don’t have to buy a house to invest in the real estate market — buying empty land is an investment, too. “One thing I’ve done several times is buy a piece of raw land and divide it into lots,” says Hunt. “I sell the first couple of lots and pay off the loan on the whole piece of land. It works really well.”

6. Invest in real estate and earn passive income

It’s not necessary to buy property in order to invest in real estate today. Passive real estate investing opportunities allow interested parties to invest money with professionals, who then turn around and invest that capital in the real estate market. Here are your options:

Real estate investment trusts (REITs)

A real estate investment trust (REIT) is a company that owns, and usually manages, real estate. According to Investopedia, a REIT usually specializes in a specific sector of the real estate market, such as apartment complexes or data centers. REITs work by collecting rents from the tenants leasing their properties and distributing the money as dividends to each of their investors.

Unlike traditional real estate investments, REITs are publicly traded like stock, meaning they can be bought and sold quickly. The downside to a REIT is that profits are taxed annually by the federal government as ordinary income, which carries a higher tax rate than other types of real estate investments.

Real estate mutual funds

According to SFGate, real estate mutual funds are a type of investment made up of securities, typically stocks, of companies that purchase real estate with money collected from investors. The benefit of investing in a real estate mutual funds is that profits remain in the fund until the fund is sold, unlike REITs. A major downside, however, is that the value of shares is tied closely to the stock market, making real estate mutual funds a volatile real estate investment.

Real estate exchange traded funds (ETFs)

Investopedia defines real estate exchange traded funds as “a type of investment fund that trades like stocks on an exchange…ETFs can hold a variety of assets such as stocks, bonds, commodities and real estate.”

ETFs are very similar to mutual funds with one big difference. ETFs are traded throughout the trading day, and mutual funds are “bought and sold at net asset value at the end of the trading day,” Robert R. Johnson, CEO of the American College of Financial Services, told Investopedia.

Private equity funds

If you’ve got a lot of cash to invest, a private equity fund may be a good fit for you. Fundrise describes private equity funds as “an investment model where investors pull their money together into a single fund to make investments in the private market.”

Typically, the minimum investment in a private equity fund is quite large, around $100,000, making this type of real estate investment viable only for people that can afford to have a big chunk of money inaccessible for a long period of time.

Opportunity funds

If a long-term investment is what you’re looking for, opportunity funds may be your ticket to investing in real estate. With an opportunity fund, at least one investor makes an investment in a Qualified Opportunity Zone.

According to the IRS, Qualified Opportunity Zones are designed to spur economic development and job creation in distressed communities throughout the country by providing tax benefits to investors who invest eligible capital into those communities. The biggest benefit to investing in an opportunity fund is that taxpayers may defer tax on eligible capital gains.

Source: (Viktor Talashuk/ Unsplash)

7. Invest via online investing platforms and apps

It has never been easier to invest in real estate at the touch of a button thanks to the rise of online real estate investing platforms and apps. These platforms allow investors to enter the real estate market for as little as $500. Here’s a look at the most popular ways to invest in real estate online.

Fundrise

Fundrise is a startup that allows people to invest in private-market real estate. According to Fundrise, the company democratizes access to the once-unattainable private market real estate asset class, making it possible for anyone to invest in real estate, regardless of their income or net worth.

Fundrise acquires and improves real estate on the investor’s behalf and diversifies each investment across a portfolio of real estate assets. The minimum investment in Fundrise’s starter plan is just $500.

Roofstock

Roofstock’s mission is to make investing in single-family rental properties radically simple. It’s the first online marketplace created exclusively for investing in single-family rental homes.

The platform allows buyers to access vetted rental homes with good investment profiles. The company employs property managers that can handle the property management of the homes, so investors can treat their single-family rental homes more like stock portfolios and keep their hands out of the nitty-gritty business of being a landlord.

To invest with Roofstock, you’ll need enough cash on hand to cough up a down payment on the rental home you purchase.

Realty Mogul

Realty Mogul bills themselves as a company that simplifies commercial real estate investing, giving their members access to vetted commercial real estate opportunities with the potential to generate passive income. The online crowdfunding platform works because investors provide the funds and the company brings forth only the projects that Realty Mogul deems the most profitable for their investors.

Realty Mogul is only open to accredited investors, meaning you’ll need a net worth of $1 million or a minimum income of $200,000 a year.

Prosper

Prosper is an online investing platform that allows users to diversify their portfolio and invest in both high-risk and low-risk home improvement loans (users can invest in other types of loans as well, including debt consolidation and medical loans).

To invest with Prosper, individuals can invest in up to 10 loans as a one-time investment order or as a recurring investment order, which automatically invests in loans that match predetermined criteria. The minimum investment is just $25, and Prosper has historically offered a 5.1% return on investment.

Lending Club

Similar to Prosper, Lending Club provides an opportunity for investors to fund consumer credit, such as home improvement loans. Lending Club provides loans that are broken down into notes. Investors do not fund the whole loan; rather, they fund notes as little as $25 across a diverse portfolio. Borrowers make payments on both the principal and interest of their loan, and investors bank the interest rate on the loan after principal and interest losses and Lending Club fees. It takes just $1,000 to get started. The average Lending Club investors sees a 5% net return on investments.

In today’s market, there are many opportunities to invest in real estate; you just need to understand which investment option fits your lifestyle and budget the best. Happy investing!

Header Image Source: (Nadine Shaabana/ Unsplash)