Real Estate has always one of the most thriving and profitable markets in the economy, even if you are an investment newbie. The real estate market is relatively pretty stable and offers a great opportunity for capital appreciation and massive profits.
This makes it a great place to park your money, even in the midst of a global pandemic, because this is a stable investment that will help you reap the benefits in the long run. In fact, the current state of the economy might even help you “get in cheap” since lenders are reducing their rates even despite house prices being higher than they have in a decade. In 2019, the housing market saw a reduction in supply and very low mortgage rates. Experts believe that this will continue well into 2021.
If you think that this is a venture that you may be interested in, here are 5 ways to enter the market efficiently and guarantee maximum profitability.
1. Real Estate Mutual Funds
While it’s common to assume that all mutual funds are made equal, they are not, and you need to choose wisely. You can opt for mutual funds that invest generally or select one that’s focused on a specific type of investment. Real estate mutual funds operate within the boundaries of the industry such as property trading or other related activities, so they will benefit from the trend of profitability in the sector no matter what you choose.
Just because they all call themselves real estate mutual funds does not mean they have the same investment rules. When weighing your options, you should consider its history and the way it works. History shows you its track record, i.e. how it has performed in the past, and the methodology is important because you want to invest in something that you’re confident in. You’ll also want to consider the fees, but you don’t want to sacrifice quality over quantity either.
2. Real Estate Investment Trusts
Real Estate Investment Trusts or REITs are similar to real estate mutual funds, but the major difference between the two is the level of control you, as an investor, have. While mutual funds will have REITs as part of their overall portfolio, ultimately, the decisions regarding each investment are made by the fund managers.
Those who prefer to be more hands-on with their money would do better to invest in REITs instead of mutual funds. They have shares that you can choose to buy as many or as little as you like, basing your conclusions upon their track record and forecasts of future performances. A word of advice: stick to publicly-traded REITs. While private REITs promise better returns, they are riskier as there is less oversight.
3. Short-Term Rentals
Renting out property has been an investment practice that has been around for a long time and doesn’t seem to be going anywhere for the simple reason that it works. You can construct your own homes or renovate pre-existing properties, but as long as you get the fundamentals right, investing in rental properties can be a surefire way to ensure that you’ll be making bank every single month.
As we said, traditional rental models are still very much thriving even in 2020, but equally successful is the newly-emerged model of short-term rental services. Airbnb is probably the most popular such service out there, but that’s not to say there aren’t thousands of other similar businesses operating successfully all around the globe. Short-term rentals allow you to charge a premium, especially if your property is located somewhere where the demand is seasonal, like a vacation destination or a festival town.
“The good thing is that you can hire a property manager to handle all aspects of the process for you,” according to Morgan Akchehirlian, CEO of Co-Host Market. “There is a ton of opportunity in short-term rentals, and I believe that once people see them, they are going to leap at them.”
4. Investments in Real-Estate Focused Companies
You might have heard the saying that it’s not the miners who make the most money, but the traders selling pickaxes. Similarly, while the real estate market is thriving, companies that provide services to those who have invested in it are making a killing too! Startups are popping up all over the place, especially those using frontline technologies, machine learning, and AI to provide services to real estate companies, homeowners, and other stakeholders.
If you’ve been wanting to launch a business that falls into the real estate spectrum, now would be the time to do it! If you’re not interested in getting your own hands dirty, you can also invest in another promising company that’s doing something similar. However, needless to say, you will need to evaluate their business model and practices to ensure it aligns with your goals and ensure profitable returns before throwing your money at them.
5. Real Estate Notes
In simple terms, you would be buying up a debt that is owed by a homeowner. Essentially, you would be paying back their lender and the homeowner is now in debt to you. Since real estate notes are often sold on distressed properties with defaulted payments, they are typically available at tremendously discounted rates.
With real estate notes, the investor has two options. The first one is to foreclose on the property (in line with the contracts and relevant rules and regulations). This is what investors looking to make a quick profit that is pretty high go with.
On the other hand, they can choose the long-term option, which is to work with the homeowner to draw up a new repayment structure. While this would take longer and result in fewer profits overall, it is a much more stable investment. Not to mention, it gives you the satisfaction of helping someone not lose their home while still earning money yourself.
Final Notes
In conclusion, investors and entrepreneurs can do very well in choosing to park their money in the real estate market or those related to it this year and the next. The market is growing in popularity and the hype doesn’t seem likely to die down soon.
But, as we have been repeating throughout this article, you must do your due diligence before investing your money or time in any ventures. Make sure to do a thorough analysis of the past trends, future forecasts, and everything else regarding the investment you have chosen. This will help shield yourself against losses as well as keep you clear of any legal issues as well.
