Are you always looking for ways to make extra money through smart investments? Have you ever considered real estate?
Recent stock market volatility has caused many investors to reevaluate their portfolios. Markets have been especially frustrating for investors seeking passive income who have been limited by the lack of satisfactory choices in today’s low return environment. The S&P 500 yields around 2%, investment grade bonds yield a little over 3% and even high yield bonds, often referred to as junk bonds, earn under 7% and can carry significant risk. With choices like these, it’s no surprise investors are looking elsewhere for different ways to make extra money.
If this sounds like you, maybe you should consider investing in real estate.
While real estate investing may not be for everyone, it can be very lucrative. Many people have made millions investing in real estate. If you’re looking for ways to make extra money, here are 4 ways to make extra money with real estate investments.
One way is through investment vehicles, such as Real Estate Investment Trusts (REITs). Similar to mutual funds, REITs pool the money of many investors to buy a portfolio of properties or mortgages and are required by law to pay most of their income out in the form of cash dividends. REITs can be publicly traded or non-traded. While REITs are a convenient and easy way to own real estate, this convenience comes at a cost. REITs, especially the non-traded ones, can have high fees, and public REITs can experience the same price volatility as any other stock. Real estate limited partnerships offer a variety of investment opportunities for high net worth individuals, but fees can be high and investment terms are often lengthy. Investors in real estate limited partnerships are relying on the expertise and professional management of the general partner for a successful outcome, so take your time and perform your due diligence before investing.
At the other end of the spectrum is direct ownership in real estate. It requires a lot more time and effort than the investments discussed above, but the payoff can be significant. Be sure to do a comprehensive and realistic analysis of the property and its potential before purchasing. Is the property in good condition or does it need work? Is it currently occupied and if so, is the rent at current fair market rates? If it’s vacant, what is the average occupancy rate in that submarket and how long will it realistically take to rent the property? Do you have time to manage the property or can you afford to hire a management company to handle day-to-day operations for you? These are just a few of the questions to consider before signing that purchase contract.
There are many companies that own and manage real estate without operating as a REIT. Companies that are real estate focused can include hotels, resort operators, timeshare companies, and commercial real estate developers, for example. Make sure to conduct due diligence before you buy stock in individual companies, but this option can be a good one if you want exposure to a specific type of real estate investment and have time to research historical data, company history, and other details.
The above used to be the only ways to make extra money by investing in real estate, but in recent years, an alternative has emerged in the form of crowdfunding. Real estate crowdfunding allows investors to start with small amounts of money, as little as $500 on some platforms, and investments range from funds to individual properties, spanning all the major categories, including office, multifamily, single family and commercial properties. Some deals offer long-term growth while others are designed for current income. These investments are not traded, but investment terms vary so you can find one with a length that’s right for you.
Many crowdfunding real estate sites appeared in the last few years and not all have survived. When considering this option, look for an experienced team that knows real estate and understands the markets they operate in. Understand the terms of the deal you’re considering, especially the fees. Fees can cut into investment returns, so don’t pay more than you need to. As with any investment, it pays to take the time to choose the right crowdfunding site for you. For today’s investor, crowdfunding can be a great way to invest in real estate and generate income.