There's more to real estate investing than just buying an investment property. In fact, conventional wisdom states that there are four different types of real estate investors. Put simply, a real estate investor is any investor who purposefully adds a real estate asset to their portfolio. It's possible for real estate Investors to also put their money into a real estate investment trust (REIT), to follow a fix-and-flip investment strategy, or to be wholesalers. As with any type of investing, each one has its own benefits and disadvantages. To that end, below is your guide to all four types of investing. Read them over so you can determine which type of real estate investing is right for you.
Now that you know a little bit more about what a real estate investor is, the next step is to take a closer look at the different types of real estate investors. With that in mind, I've laid them out for you below. Read each of them over to get a better idea of what each distinct investment strategy entails.
Investing in a real estate investment trust (REIT) is the most passive form of real estate investing available. With this method, you'll invest similarly to the way you'd invest in the stock market. Here, you'll buy shares of a real estate investment company and receive dividends when the company pays out its profits. A publicly traded REIT will even have its shares listed and traded on major stock exchanges. However, a non-traded REIT may still be listed with the SEC, but it's not publicly traded, or it may be a private company.
Buy-and-hold investing is the classic example of real estate investing, where you buy up an investment property and rent it out for consistent monthly income. Overall, this is a relatively active form of real estate investing. You do have to do the groundwork of marketing for a tenant, vetting all the potential applicants, and being on call to handle maintenance issues. It's also meant to be a long-term strategy since investors tend to buy an investment property and keep it in their portfolio for multiple years. You may also hire a professional Property Manager such as one of the ones at Crown Realty Experts.
The fix-and-flip investing. As you might be able to guess, this is the same type of investing that you often see on HGTV. In this scenario, the investor will do their best to find a real estate deal that's undervalued for the market. Then, they'll fix it up and market it for resale at a much higher price. Once the buyer is found, the investor gets to keep the difference between the initial investment and the final sale price as profit.
The main benefit of this type of real estate investing is that, if you find the right investment opportunity, it has the potential for high returns. Also, it's a short-term investment strategy, meaning you could see a return on your investment in just a few months.
WholesalingReal estate wholesalers will act as a middleman between a property owner and an end buyer. Here, the investment strategy is to find an underpriced real estate deal. Then, to quickly sell it for a higher price to an interested buyer without rehabbing it first. In this scenario, you get to keep the difference between the price you paid for the property and the price you sold it for as a profit. Be careful about real estate laws to ensure that you know what is allowable under the law in the state where you wholesale so you do not sell real estate without a license, where required.