Property investment is one of the most profitable and lucrative businesses there is in the world. If taken seriously and handled with care, you can be assured of good and high returns. You can consider property investing as a way of using your retirement funds. This will earn you passive income at the comfort of your home. Property investment has by far been the most preferred investments in the recent world. Reason being, it is a fast-growing industry and demand for property rises each day. This investment appreciates with time although it may not be an assurance. There are a number of ways you can use to get into property investment. In this article we will help you discuss various ways of property investing and their benefits and risks.
1. Rentals
This is one of the most common ways of property investment. Many people have ventured into this investment and it for sure is a promising one. In most cases when an investor wants to venture into property investment, this is always the first thing that comes into their minds. Rentals involve purchasing property, construction units and renting them out to tenants, with an aim of earning income. The monthly rent is what earns you income and profits. You may also decide to later resell it at a profit once the investment appreciates.
Benefits
- Earns you passive income through monthly rent
- When demand for real estate rises, your investment appreciates and you can sell it at a profit
- Rentals are a way of creating equity
- You get to enjoy the benefit of tax deductions as it is not charged the rental property tax.
- Interest charged on your investment loan is not taxed
- You get to enjoy the privilege of being a landlord
- You get to decide on the pricing and choosing your preferred tenant.
Risks
- In cases where the landlord is busy, there comes in an extra cost of hiring a property manager.
- In cases where the units are vacant, it may lead to losses because you will still be required to make mortgage repayments as agreed with your lender.
2. Investment groups
This is a group of investors who come together and contribute funds to invest in property development. This investment does not have a restricted number of investors. The income is distributed amongst these investors depending on your shares in the group. Responsibilities are also shared amongst the investors but there is need for a professional who helps them mange the projects. They can invest in property and later resell it to other investors.
Advantages
- Ability to invest in multiple projects.
- With time, as you gain knowledge, you may decide to invest in large projects.
- Minimal time used on the investment as the group manages the investment for you.
- Expansion of group projects to minimize risks
Disadvantages
- The bylaw governing this investment may affect your profit.
- Most groups prove it difficult for you to withdraw your investment in case you want to invest somewhere else
3. Real estate investment trust
Unlike an investment group, a real estate investment trust is limited to only 100 investors, who may be owning other investment such as apartments and commercial buildings. This groups operate on income generating projects only. They are mainly divided into two: mortgages real estate investment trust which deal in both residential and commercial building or equity real estate investment trust which specializes in a specified type of property investment. Equity real estate investment trust often has high dividends.
Advantages
- It has high dividends that you can consider re investing.
- Gives investors the ability to invest in commercial buildings
- You can easily predict your income
- Offers liquidity
- You can avoid taxes by paying 90% income to investors
Disadvantages
- Be keen on the type of investment you choose depending on the market trends
- Private trusts can find it hard to sell their investments
- They can be affected by changes in interest rates
4. Real estate mutual fund
This is a type of investment that invest in several real estate investment trust and real estate companies using experts.
Advantages
- Since it is managed by an expert, it gets you less worried about risks
- Investors get analysis about market trends
- This involves a wider range of investments to choose from unlike in an investment trust.
Disadvantages
- They have quite a high management cost
- It has less liquidity as compared to investment trust
- It can be affected by a change in interest rates
5. Limited partnerships
This investment can be closely related to investment groups only that it has a limited timeline. It also has a limited number of investors who provide funding in exchange for shares.
Advantages
- You have the freedom to invest in a property of your choice. Some may specialize and some may not.
- Gives you a privilege to own larger properties that you were unable to on your own
- Limited partnerships do not pay tax on their income, as it classified as a pass-through organization.
- The profits are divided to investors depending on their dividends or on the amount they agreed on.
Disadvantages
- Illiquidity. This means you will have to be patient until the property is sold in order to enjoy profits or maybe claim your money back.
- It has a limited number of investors.
6. Flipping homes
Flipping homes involves purchasing a home or property, renovating it and later reselling it at a profit.
Advantages
- It is a liquid investment and it rewards on time
- Low labor costs can increase your profits as a flipper
Disadvantages
- Emergency costs can use up a lot of money and this refers to your profit.
- You are under risk of losing your money, if you do not sell the property.
- Profits are mainly based on whether you will sell the property or not.
7. Online programs
Lending platforms and crowdfunding programs can be a great way for investors and developers to meet. Investors will fund projects and later expect monthly returns. The platform also gets paid with the returns.
Advantages
- Crowdfunding reduces your personal risks
- The investment is readily accessible
- It gives you time to engage in other types of investments
Disadvantages
- The returns could be lesser as compared to other groups or direct investment
- Crowdfunding can lead to projects being offloaded
- The investor has absolutely no authority of the process because the developer gets to decide what is best for the project.
- Most developers prefer recognized investors thus leaving out beginners.
Conclusion
Property development is not for everyone. Before getting into property investment, you will need to be sure if you are all set up to commence this journey. Know the purpose of investing. For instance, if you are looking for an investment that will grow your retirement funds, it is good to go for the fastest growing or the type of investment that has a high demand. This way you will be assured of excellent and high returns and a good profit when the property appreciates over time. In case you are a beginner, consider looking for a financial advisor. Additional costs may arise in the middle of the project and this may affect your financial health if you had not planned yourself well. Do thorough research about the investment you want to venture into and also the market trends. Research on the losses and profits margins and maybe the capital growth.
FAQs
1. How do I invest in real estate?
There are several ways you can use to invest in real estate. These include, purchase and flip homes, renting out a room, buy multi dwelling units to rent out, build commercial buildings to let such as office spaces and warehouses.
2. How can I join real estate as an investor?
There are a few things you will need to do as you join this field. You will need to research and learn about property investing, have a ready and detailed business scheme, research on the local market trends, consult experienced investors and be diligent
3. How do I invest with no money?
In case you have little or no money, consider engaging in equity partnerships. This is where you get a person to help you fund your project and pay them later on. This is the most available method for investors with no money but desire to invest in real estate.
4. How good is it to invest in real estate?
This is the most lucrative investments ever. It is by far the best as it keeps growing globally. With a good market trend, you can be assured of high returns in your investment.
5. Which is the best property investment?
There is no specific property investment that is better than the other. However, rental property has proved to be worthwhile and is offering great returns.
6. What is passive income?
Passive income is income that needs you to work less to get it. It can also be referred to as unearned income. Examples of passive oncome include, renting out a room or a space, interest on savings, buying dividends and shares, and selling your products online. This is simply getting your money to work foy you’re at the comfort of your home.