What makes a good real estate investment can vary depending on your financial goals and investment strategy. Real estate investors, like Patrick Carroll, are involved in various types of real estate ventures, illustrating that there are multiple ways to succeed in the field, depending on what you’re aiming to achieve.
Setting Your Goal
Before diving into real estate investing, it’s essential to clarify your objectives. Are you looking for a home to live in and hold onto, a house to flip for a quick profit, or a rental property to generate ongoing income? Each option offers a different path toward financial success.
Buy and Hold: This strategy involves purchasing or building a home that you gradually improve while living in it. Over time, the property appreciates in value, offering both a place to live and a growing financial asset as mortgage payments build equity.
House Flipping: House flippers purchase homes in need of moderate repairs, make targeted improvements, and sell the property for a profit. These investments tend to be short-term, with the average net profit for a flipped house in the U.S. ranging from $25,000 to $35,000.
Rental Property: When investing in rental properties, you purchase a home or multifamily building and rent it out to tenants. As the owner, you’re responsible for upkeep and maintenance, which can be done personally or through a property management service. Rental properties provide ongoing income, though they require more hands-on involvement.
In all of these scenarios, you’re making a direct investment by purchasing the property yourself. However, direct property ownership isn’t the only way to invest in real estate.
Indirect Real Estate Investing
For those interested in real estate without the responsibilities of property management or ownership, indirect investment options such as real estate investment trusts (REITs) and online real estate platforms can offer an alternative. According to Nerd Wallet, REITs allow individuals to invest in real estate by buying shares, much like purchasing stock. Online real estate platforms also offer investment opportunities, although many of these require investors to meet certain financial criteria.
Becoming an Accredited Investor
Some real estate investment opportunities, particularly those available through online platforms, are limited to accredited investors. An accredited investor is defined as someone with a net worth of at least $1 million (excluding their primary residence) or an annual income of $200,000 (or $300,000 when combined with a spouse’s income) for at least the past three years. Accredited investors gain access to unregistered investment opportunities, such as pre-IPO companies and real estate ventures.
In 2020, the U.S. Congress expanded the definition of accredited investors to include registered stock brokers and investment advisors, opening up more opportunities for professionals in the financial sector to invest in these types of offerings.
Getting Started in Real Estate Investing
For those who are not accredited investors or don’t want the hands-on responsibility of maintaining a property, REITs can be an excellent entry point into real estate investing. They provide exposure to real estate assets without the need for large upfront capital or direct property management. REITs also offer a way to benefit from real estate’s long-term appreciation and rental income without the complexities of property ownership.