No, you don’t have to be a Real Estate investor to make good money investing in real estate but if you’re not throwing around Millions of dollars, don’t expect to blazon your name on any high-rises, either.
Aside from the malls, office buildings, or ultra-luxe residences preferred by the 1%, there are plenty of opportunities that are more realistic for the rest of us. Here’s a look at some of the most common options for a rookie to invest in real estate, along with the pros and cons of each.
1. Vacation homes:
You might yearn for a chalet near the beach or a winter chalet next to the slopes, but fear you can’t afford it since vacation homes are 10 to20% pricier than regular homes. Well, maybe you can swing it and make some money at the same time by renting it out when you’re not there. Sounds good, right?
Pros: Renting out the property can offset the cost of maintaining a second home. Plus, sites such as Airbnb have made it a snap to market your property to would-be vacationers.
Cons: While your vacation home may well turn out to be a moneymaker, you’ll have to shell out a fair amount upfront. Income, down payment, and credit score requirements are often higher when financing a second home, and you may face higher interest rates as well, so be sure to research that carefully.
And as far as taxes go, it matters how often you rent out the property since you’ll have to pay income taxes on the rent. But if so, you will be able to write off related expenses.
Finally, you’ll have to be OK with strangers living in your vacation home and using your stuff and factor in the costs associated with that.
Your maintenance costs will include not only the walls of your property, but the maintenance of your personal property as well as your furniture, kitchen…
2. Commercial properties:
You might buy an office, warehouse, shop or any commercial space, renting it out will make you some extra money per year.
Since it’s easier to manage the property a big number of newly real estate investors are buying commercial properties. There’s not much additional maintenance on these kinds of properties likes houses; you’ve got to mow your own lawn anyway. Plus, you can write off the costs of maintaining the unit on your tenants.
3. Small apartment buildings:
If you have a sizable pile of cash to invest, why not pour it into a multifamily building? Places with four or fewer units can be purchased with traditional financing, and they’re a good option for folks who plan on living in one unit and renting out the others.
Pros: Multiple-unit buildings provide multiple revenue streams, so if one apartment goes vacant, you can rely on rent from the others to help offset costs while you look for a new tenant.
Cons: We hope you’re handy with a wrench: Each of the revenue streams is attached to a tenant, so expect double or triple the number of calls about leaky toilets or heating issues. Also, if the tenants have issues with each, they’re going to expect you to play mediator.
4. Single-family homes:
Whether it’s a condo or a stand-alone house, this type of investment is generally pricier than the options mentioned above. But the rewards may be worth it: Many investors who scooped up single-family homes during the housing bust are making big profits renting them out to folks who’d rather rent than buy but still want the lifestyle afforded by living in a house.
Pros: “There is always demand for single-family homes,” Appreciation typically outpaces that of other investment properties, and it’s also easier to find a buyer (you can sell to either an owner-occupant or an investor) if you decide you no longer want to own the property.
Cons: In addition to facing a higher cost to purchase, you’ll be relying on a single revenue stream. This means if your tenant moves out, you have to have enough cash to cover costs until you find a new tenant. That said, tenants in single-family homes tend to stay put, so you may not be scrambling as much as you might think.