Real Estate Investment Options
I have been doing a lot of research into alternative investments, after watching the crazy see-saw that the stock market has been over the past few years. I have a desire to create a secondary source of income, as it is all too easy for a person to lose their job when the economy takes a hit, or if they get hurt and can’t work. I have a financial advisor, and he always tells me just to stay the course, and keep buying when stocks are low and when they are high so that it “dollar cost averages”, meaning the amount they are worth evens out over time and eventually makes a profit. The funny thing, is that most of that profit seems to appear when I am a very old woman, and probably won’t be doing much with it. In the meantime, I work myself to the bone, and put money in the stock market, which often feels like throwing it away, all while hoping I have enough to retire before I die. This is what made me start looking into other ways of building wealth.
There Are Many Options in 2022
One of the standout options is to start investing in real estate. I have wanted to do this for many years, but I never seem to have enough capital to buy another house, let alone several. I started watching the real estate investing gurus and mentors that are all over the internet, and doing my own research on sites like Bigger Pockets and Roofstock. I have also watched hundreds of hours of webinars and free trainings online, most of which culminate in someone selling something. They do have some good information, though. These online gurus tell you about creative financing without using your own money. There are various angles of this approach, one of which is wholesaling. What it boils down to is you have to a. convince someone to sell their house at a discount and get them to sign a contract, then b. quickly find someone else who wants to buy it for a little more, and you make the difference as a finder’s fee. You have to be very careful, though, because if you do it wrong, or ask the wrong people it could be illegal, or you may get scammed by the person supposedly willing to buy it. It is possible to do, and it seems people can make a lot of money doing this, but I struggle with it, because I am not an outspoken, hustler type person. I would have a very hard time talking to people and trying to get them to sell their house to me, while relying on someone else to actually come up with the money. I am a pretty linear thinker, who loves to have a strong plan with contingencies, and this seems like a lot of moving parts and potential pitfalls.
The gurus also tell you about using other people’s money, or OPM, to fix and flip houses. The concept starts similarly to wholesaling, where you have to find a house at a discount. Then you get someone to invest the money, plus the amount needed to fix it up. You could get your own financing for this through a bank, as well, but of course you need to have the money for the down payment and close. This amounts to somewhere around 25% of the selling price. After you fix the house up you can sell it for a profit, or keep it and rent it out. If you can’t come up with that kind of down payment, there is the option of house hacking. This is where you would buy the house as your own place to live, typically requiring much less up front, like 5-8% with closing costs, give or take. The catch is, you have to stay there for 2 years, or at least not rent it out for that long, in order for it not to be mortgage fraud. During that two years, you would renovate the home, and then you could sell it or rent it out.
There are some ways of investing in real estate that are less hands-on. You can buy the lien on a house, with the idea that the person who owes it will pay you back with interest or else forfeit the home to you. You can join a crowd funding site, where you buy shares of a large conglomerate of real estate, without owning the individual assets directly, but getting returns over time as the asset appreciates and is sold, or sees returns from rent. This is the idea behind Fundrise. They are a reputable company that sells e-shares of properties, which are not publicly traded in the stock market. The money you invest gains value as the assets appreciate, and you have the option of liquifying your investment quarterly, provided the market is not in too much of a spiral. Fundrise has the ultimate say in whether or not they can liquify your shares, based on if they can get someone to buy them, or whether it would cause them a loss. They expect people to look at the investment as long term, like any real estate investment, and keep their money in place for at least 5 years to see the most return. You can also invest in Real Estate Investment Trusts, or REITs, in much the same way as you would invest in stocks. You buy shares of theses funds, that are representing companies who invest in real estate, and as their profits increase they are distributed to shareholders proportionately. The great thing about these is that the money is still fairly liquid, meaning you can decide to sell your shares and have the money in your bank account in a matter of days, just as you would a stock that you sell. The bad part, is that it is essentially like owning stocks, and subject to some volatility.
All real estate investing, and really any investing, comes with risks. Your money may not make any money at all. It could even lose value. Your money may not be available for withdrawal for many years. If you are investing in rental homes, you have all the responsibilities of a landlord, and your investment could actually cost you more than it makes you. Statistically, real estate is considered more profitable and less volatile than the stock market, and has been known to build people’s wealth over time. It does have some major drawbacks, and it can be very expensive to get started, but if you go into it expecting to stay invested long term, and willing to accept the risks and downsides, it is still an investment many people will be happy they ultimately pursued. The most important thing is to do your research, and know what you are getting into before you do it. I will continue to post information that I learn about real estate investing, so keep visiting FinancePlainandSimple.com to learn more.