Did you know that the real estate industry is considered one of the key contributors to the national GDP, pooling in an average 15% -18% to this national basket annually? Did you also know that the return on investments on real estate and property over the past century has outperformed almost every other investment class including stocks and the guaranteed government bonds?
Having lived through the 2007/8 real estate bubble that burst into a financial crisis, you probably are familiar with the impact real estate industry has on the rest of the economy.
But what do these facts tell you about investing in real estate? That, with the right strategy, the residential, commercial, and industrial property space can be both highly satisfying and rewarding.
Long gone are the days when the real estate industry was a preserve of the few members of the elite class and deep-pocketed realtors. Technology, lower mortgages, and ease of access to different types of loans have opened up the real estate space making it possible to invest from as low as $500 while promising even higher returns.
In this real estate investment guide, we list some of the most rewarding opportunities currently available. But first, let’s understand how you can earn from real estate.
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How do you earn from real estate investments?
There are four primary ways of benefiting from a real estate investment including:
- Rent: This is by far the most popular way of earning from the real estate and involves generating incomes from leasing a property you own. It is a passive income earner and one that guarantees an almost steady income stream.
- Profit margins: You can earn profit margins from real estate investments in either of these two ways: buying dilapidated houses, refurbishing them and selling them at a profit or by leasing a property and subletting for a higher amount and pocketing the extra amounts.
- Appreciation in value: Land and buildings are always up-trending, the ever-rising demand for residential, commercial, and industrial properties has served to consistently boost the cost of these houses up. This explains why the real estate market has recorded the most appreciation of all classes of investments for the past 100 years.
- Loan interest: Ideally, this method of profit generation involves lending real estate company money to help them pursue their ventures with the promise that they pay together with interest. Traditionally, this technique was a preserve of private equity funds. Technology has however birthed the all-inclusive crowdfunded real estate ventures.
Most rewarding opportunities in real estate investing
Why invest in real estate?
- Passive incomes: Most forms of real estate investing are largely passive or semi-passive income generating streams. Whether you are building rentals or investing in a real estate-focused company, technology and the availability of numerous real estate management firms have made it possible for you to concentrate on more important factors and have them managed by these professionals.
- Highly rewarding: The real estate market is arguably one of the most lucrative forms of investment currently available. When its aggregated return on investment over the last 145 years was measured against what most individuals consider lucrative investments like stocks and treasury bills, real estate posted a higher overall return on investment.
- Ease-of-access to funds: Given the ridiculously low interests offered on savings accounts by banks, every individual, private institution, and even the banks are always looking for ways to invest their disposable income in more lucrative ventures. You, therefore, cannot claim a lack of access to finances as long as you have a solid real estate investment business plan.
- Minimal risks: Most of these forms of investment are insured thereby reducing the level of risk your investments are exposed to. The industry is also massively regulated, effectively reducing incidences of fraud and conmanship.
The country's economy is ever-growing, albeit gradually, just as the population of its inhabitants. And these two are the primary drivers of demand in the real estate industry. Over the years they both have consistently pushed up the need for both residential and commercial properties, making today the most opportune time to venture into real estate.
The ease of access to loans, numerous passive and semi-passive real estate investment options, and the ability to minimize risk through insurance help create a conducive investment environment. Before committing to one or several of these real estate investment options we advise that you consider gaining as much information about the niche to check whether it matches your client descriptions.
Glossary of Investment Terms
A bond is a loan made to an organization or government with the guarantee that the borrower will pay back the loan plus interest upon the maturity of the loan term. It can be advanced to the national government, corporate institutions, and city administration. It is an investment class with a fixed income and a predetermined loan term.
A mutual fund is a professionally managed investment vehicle that pools together funds from numerous investors and invests it in such securities as stocks, bonds, and other money market instruments. They are headed by portfolio managers who determine where to invest these funds. They are highly regulated and invest in relatively low-risk money markets and in turn post lower rates than other aggressive managed funds.
Peer-to-peer lending (p2p lending) is a form of direct-lending that involves one advancing cash to individuals and institutions online. A P2P lending platform, on the other hand, is an online platform connecting individual lenders to borrowers.
Bitcoin is the legacy cryptocurrency developed on the Bitcoin Blockchain technology. It is a new form of money primarily developed to solve some of the inherent challenges associated with fiat currencies like inflation and over-production. It is virtual (online) cash that you can use to pay for products and services from bitcoin-friendly stores.
An index fund refers to the coming together of individuals to pool in funds that are then invested in the stock and money markets by professional money managers. The only difference between an index fund and a mutual fund is that the index fund follows a specific set of rules that track specific investments and index stocks.
An Exchange-traded fund refers to an investment vehicle that is publicly traded in the stock exchange markets – much like shares and stocks. The fund is expert-managed and its portfolio comprises of such investment products as stocks, bonds, commodities, and more money market instruments like currencies.
Retirement refers to the time you spend away from active employment and can be voluntary or occasioned by old age. In the United States, the retirement age is between 62 and 67 years.
Penny Stocks refer to the common shares of relatively small public companies that sell at considerably low prices. They are also known as nano/micro-cap stocks and primarily include any public traded share valued at below $5.
Real Estate can be said to be the land and buildings on a given property as well as other rights associated with the use of the property like the air rights and underground rights. Real estate can be either commercial if the land, property, and buildings are used for business purposes or residential if they are used to non-business purposes – like building a family home.
REITs are companies that use pooled funds from members to invest in income-generating real estate projects. While a REIT may specialize in one real estate niche, most diversify and invest in as many high-income real estate projects as possible. They are especially interested in commercial real estate projects like warehouses, prime office buildings, residential apartments, hotels, timber yards, and shopping malls.
Asset simply refers to any resource of value or a resource that can be owned and controlled to produce positive value by an individual or business.
A broker is an intermediary to a gainful transaction. It is the individual or business that links sellers and buyers and charges them a fee or earns a commission for the service.
Capital gains refer to the positive change in the price of a capital asset like shares and stock, bonds or a real estate project. It is the difference between the current selling price of the asset and its lower original buying price and it is considered a taxable income.
A hedge fund is an investment vehicle that pools together funds from high net worth individuals and businesses before having professional money managers invest it in highly diversified markets. The difference between mutual and hedge funds is that the later adopts highly complicated portfolios comprised of more high-risk high-return investments both locally and internationally.
An index simply means the measure of change arrived at from monitoring a group of data points. These can be company performance, employment, profitability, or productivity. Observing a stock index, therefore, involves measuring the change in these points of a select group of stocks in a bid to estimate their economic health.
A recession in business refers to business contraction or a sharp decline in economic performance. It is a part of the business cycle and is normally associated with a widespread drop in spending.
Taxable Account refers to any investment account that invests in shares and stocks, bonds and other money market securities. The account is offered by a brokerage company and you are obliged to report and pay taxes on the investment income each year.
A tax-advantaged account refers to savings of investment accounts that enjoy such benefits as a tax exemption or deferred tax payment. Roth IRA and Roth 401K are examples of tax-exempt accounts whose contributions are drawn from after-tax incomes with the yields generated from investing funds therein being tax-exempt. Traditional IRA, 401K plan and college savings, on the other hand, represent tax-deferred accounts. Their contributions are deductible from your current taxable incomes but you get to pay taxes on their accrued incomes.
Yield simply refers to the returns earned on the investment of a particular capital asset. It is the gain an asset owner gets from the utilization of an asset.
A custodial account is any type of account that is held and administered by a responsible person on behalf of another (beneficiary). It may be a bank account, trust fund, brokerage account, savings account held by a parent/guardian/trustee on behalf of a minor with the obligation to pass it to them once they become of age.
An Asset Management Company (AMC) refers to a firm or company that invests and manages funds pooled together by its members. Like mutual or hedge funds, the AMC creates diversified investment portfolios that comprise of shares and stocks, bonds, real estate projects, and other low and high-risk investments.
A registered investment advisor is an investment professional (an individual or firm) that advises high-net-worth (accredited) investors on possible investment opportunities and possibly manages their portfolio.
The fed rate in the United States refers to the interest rate at which banking institutions (commercial banks and credit unions) lend - from their reserve - to other banking institutions. The Federal Reserve Bank sets the rate.
A fixed-income fund refers to any form of investment that earns you fixed returns. Government and corporate bonds are prime examples of fixed income earners.
A fund may refer to the money or assets you have saved in a bank account or invested in a particular project. It may also refer to the collective basket of resources pooled from different clients that are then invested in highly diversified income-generating projects.
Value investing is the art of using fundamental analysis to identify undervalued shares and stocks in the market. It involves buying these shares at the current discounted prices and hoping that a market correction pushes them up to their intrinsic value effectively resulting in massive gains.
Impact investing simply refers to any form of investment made with the aim of realizing financial returns while positively impacting the society, environment or any other aspect of life in the process. Investment in solar projects and green energy, for instance, posts profits and helps conserve the environment.
An investment App is an online-based investment platform accessible through a smartphone application. It lets you save and invest your funds in a preset portfolio that primarily consists of shares and stocks, bonds, ETFs, and currencies based on your risk tolerance.
Real Estate crowdfunding is a platform that mobilizes average investors – mainly through social media and the internet – encourages them to pool funds, and invests them in highly lucrative real estate projects. It can be said to be an online platform that brings together average investors and lets them enjoy real estate projects previously preserved for high net worth and institutional investors.
How much do I need to start investing in real estate?
If you hope to start a real estate construction company or buy/build rental property, a substantial amount have to be invested. But if you are to invest in the more revolutionary crowdfunding real estate ventures like Fundrise and Rich Uncles you can invest with as little as $500.
How do I earn from Fundrise?
Fundrise offers two types of returns in the form of quarterly dividends distributed from profits earned through the utilization of your cash as well as the appreciation of your real estate shares. The company will also send you periodic cash advances if and whenever they decide to offset some of their assets under management. Plus, they promise to review the value of your shares based on the value of their underlying asset quarterly or semi-annually.
Is real estate investing right for me?
Yes, everyone stands to benefit from real estate investments. The fact that it is probably the most lucrative investment plus most of the investment options here don’t require prior experience in real estate makes it the most suitable for virtually anyone looking to invest or diversify their options.
How much of skills and resources do I need before I start investing in real estate?
No, unless you want to start flipping houses or establish a construction company, both of which require a tad bit of previous exposure in the industry. The rest that can be done through such proxies as property managers and Fundrise and don’t require you to have previous skills or experience in the industry.
Am I too late in getting into property investments?
Most investors that ventured into real estate right after the 2007/8 bubble burst, at a time when most residential and commercial properties sold for pennies, have earned 500%+ on most of these investments. But the industry is still on recovery mode and the demand for property is constantly exceeding demand, pushing prices up, and your possible returns on investments expected to be even higher.
How do I decide on the best investment strategy?
Based on your previous real estate industry experience (or lack of it) and the amount of disposable income at hand, you will find some of these investment options more appealing compared to others.
Which is better between real estate and stocks?
The performance of different stocks may outperform the real estate investments in the short term, but real estate ventures always have the last laugh. The high volatility witnessed in the stock and equity markets will often see the value of stocks constantly fluctuating between big wins and deep losses while the relatively stable real estate ventures assume an uptrend for the better part of their term.
Will my real estate investment guarantee stable and consistent profits?
No, even rental income that is often considered one of the most fluid forms of investment often fails the consistency test for the months falling in between the termination of tenancy and scoring another.