David Ebrahimzadeh discusses 7 ways to invest in real estate profitably
Many people may be intimidated by investing in real estate. Real estate investment can be an essential means of building wealth, and people who are interested in this type of investment have many places to turn for advice. Unfortunately, not all of this advice is helpful. David Ebrahimzadeh, a real estate investment professional offers seven ways to invest in real estate profitably.
1. Focus on Rental Properties
Short-term rentals like Airbnb properties and long-term rentals like apartments are some of the most profitable investments. These buildings provide a steady stream of passive income, and they are likely to increase in value. Landlords can also raise the rent yearly to cover more of their expenses. There can be some drawbacks to owning a rental property, most having to do with handling the tenants’ day-to-day needs. Fortunately, it is possible to hire a management company to handle your short- and long-term rentals, so all you have to do is approve expenses and collect your money.
2. Look into Real Estate Investment Trusts
Real estate investment trusts or REITs are an excellent way for novice investors to get started in this field. With a REIT, it is much easier to turn the investment back into liquid cash. It is harder to sell a property, and sometimes you will have to deal with price drops. REITs should provide a steadier source of income. They are suitable for investors who want to be in on the increased income potential of real estate but do not want to deal with owning a building themselves.
Crowdfunding is a newer way to invest in real estate. Real estate developers identify investment opportunities, most often combining a commercial real estate asset and a modification that adds value. This could be simple, like restructuring debt or refinancing a mortgage or complex like doing a complete renovation. Instead of putting up the entire sum of money needed to buy, the developer puts the investment on a crowdfunding site. That way, the individual investors can take a share in the profits.
Crowdfunding has enormous profit potential. Sometimes, a crowdfunded investment will have a rate of return of 15 percent or more. These investments can provide income over time, as well as a more significant return when the building is sold. This technique can help novice real estate investors get into more substantial projects that might be too complex and intimidating to take on by themselves.
4. Make a Hybrid Property
It may be a good idea to buy a multifamily building and live in one unit. This situation means that your tenants are essentially paying your mortgage, as well as making you a significant profit. You can also buy a single-family home and rent out one of the rooms. This method is a great, low-cost way to start building a rental property portfolio.
Since you live on the property, even multi-unit residential properties can qualify you for primary residence financing. This strategy can bring you better interest rates and down payment requirements.
The downside to this situation is privacy. If you are not used to living in an apartment or duplex, you may not enjoy living so close to a neighbor. Sharing a yard with your tenant can be awkward at times. Fortunately, your investment will likely become profitable relatively quickly, and then you can take your profits and invest in another home to live in.
5. House Flipping
While the fad for house flipping has passed, it can still be an excellent way to make money on real estate. Potential “flippers” need to know about the risks and rewards of this type of real estate opportunity. This is not a job for the passive investor, and it requires a great deal of face time. Making money happens when you buy the property, not when you sell.
You should think about using the 70 percent rule, where your costs for buying the home and repairing it does not exceed 70 percent of the expected selling price. Be sure that you do your repairs and sell the house quickly to take advantage of market trends.
6. Building New Homes on Spec
This can be a great strategy in an area with a low supply of new homes to choose from. Building on spec means that you are anticipating the property’s sale when it is finished. Be aware that building a home could take as much as a year and use the same 70 percent rule when it comes to deciding what your expenses should be.
7. Invest in Debt
Another type of real estate investment that is often overlooked is investing in debt. It is not necessary to start your own mortgage company or directly lend money. Crowdsourcing platforms provide the opportunity to invest in debt income. You can generally get more profit from a debt investment than from an equity investment. Crowdfunded debt investments could make as much as 8 percent.
Some combination of these strategies will help you balance your portfolio and cushion against losses. Taking a close look at your financial situation and what you can spend will lead you to the right type of investment. David Ebrahimzadeh recommends that every prospective investor do their research before spending any money on real estate.