Investing in real estate can be an intimidating subject, especially for younger people with less capital. In 2022, the average cost of a home in the US in 2022 was $348,000. This means that you’ll typically need upwards of $20,000 to start buying property.
While investing in real estate can be intimidating, there are many benefits that come along with it that can make the risk well worth the reward. With that in mind, let’s discuss the different ways you can start investing in real estate as a beginner, and the many benefits associated with real estate investing.
Different ways to invest in real estate
Buying a home is the ultimate American dream for most people. But, if you don’t have the cash to invest upfront it can be hard to own your own property. Luckily, there are other ways to invest in real estate without buying a property yourself. And when done right, investing in real estate can be very lucrative that can give you extra cash flow every month.
Below are some popular investment options in the world of real estate:
1. Buy shares of a REIT: Real estate investment trusts (REITs) are companies that own cash-flowing real estate such as office buildings, retail spaces, apartments, and hotels. You can then buy shares of these companies on the stock market, just like you would buy a share of Apple or Amazon. Some popular examples are Prologis Inc. (PLD) and Realty Income Corp (O). You can buy shares of a REIT through your brokerage account, if available. REITs tend to pay high monthly dividends, which makes them a common real estate investment tool.
2. Invest in rental properties using third-party apps: Some investing platforms, like Fundrise, allow you to invest in real estate through a process known as crowdfunding. Essentially, instead of trying to raise all the money yourself, you can buy a property by pooling your funds with hundreds of other investors.
3. Invest in real estate syndications: Real estate syndication is the process of pooling funds from multiple investors to finance the purchase of a property or properties. This investment strategy has great upside potential, especially for new investors. Real estate syndication allows investors to tap into more considerable capital to finance and construct large commercial buildings, such as large hotels or apartment buildings. This can be especially helpful for new investors who may not have the financial wherewithal to go alone.
Let’s discuss how real estate syndication works and its benefits in more detail.
How a real estate syndication works
This type of investment is a great opportunity for investors who want to capitalize on the high return potential of real estate, but don’t necessarily want to directly become property owners.
When investing in a real estate syndication, there are two main parties involved — the general partner and the passive investor.
Image from fool.com
The general partner is the individual that identifies, plans, and oversees the investment. The general partner is also responsible for distributing any income or profits from the deal.
The passive investors are the rest of the investors that contribute capital to the deal but do not handle any of the day-to-day operations of the fund.
Benefits of investing syndications:
- High Return Potential. When done well, there is a lot of money to be made in investing in real estate through syndications and they can offer higher return potential than buying shares of a REIT.
- Access to unique real estate investments. Funding the development of a new hotel in a developing area can take lots of expertise and years of planning. With real estate syndication, an investor can passively invest their money in the development of a new property while leaning on the expertise of a veteran investor who handles the bulk of the work.
- Portfolio Diversification. Investing money in syndication can help diversify your portfolio away from just stocks and bonds. It can even help you diversify within real estate by giving you access to different types of assets (commercial, industrial, residential, etc).
Final thoughts
Like all investment decisions, getting started in real estate will be a personal decision that comes down to your own investment goals and risk tolerance.
If you don’t want to own a property yourself, or simply can’t afford to yet, there are many other real estate investment options available like REITs, crowdfunding sites, and syndications. Regardless of which option you choose, you’ll still get access to all of the benefits associated with owning real estate.
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Sachin Maskey is a physician, real estate investor, philanthropist, and entrepreneur. He has over 17 years of expertise in the medical industry as a family medicine specialist. Outside of medicine, he is the founder of the commercial real estate investment firm Avatar Equity as well as the Dhana Yoga Foundation. You can follow along with Sachin on Instagram, TikTok, Facebook, and LinkedIn.
