Real estate investing may appear to be rewarding, but it requires a significant amount of capital to get started. While it’s tempting to assume that the only way to invest in real estate is to buy a property, the truth is that there are a variety of different possibilities that provide lucrative and consistent cash flow without the need to own a home. Property ownership is not required for real estate investing.
There are a variety of additional options available to investors that allow them to benefit from real estate appreciation without having to take on the continuing obligations of building care.
Investors that want to go beyond the standard definition of real estate can invest in a variety of locales, property sizes, and real estate classes. While these investments may serve as a stepping stone to future property ownership, you may find the profits on these investments to be appealing enough to forego purchasing a home entirely.
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‘Are financial constraints blocking you from investing in real estate?’
Here are some of the most cost-effective real estate investment options for you which are not only pocket-friendly but also hassle-free in terms of management.
1. Real Estate Crowdfunding
Real estate crowdfunding is a type of investing in which a group of people pools their money to invest in a specific real estate venture. To reach a potential investor audience, the process is frequently handled through online platforms like Assetmonk.
These online platforms also play the role of a property manager and help eliminate stress relating to the maintenance of the property. They ensure quality in the construction and also carry out necessary renovations to ensure higher rates of appreciation.
They also advertise the property and find potential tenants after conducting the screening process. Investing in crowdfunding opportunities is also stress-free as convenient apart from it being cost-efficient.
You as an investor need not worry about conducting market analysis and length paper works as the property managers take care of them.
Assetmonk is a real estate crowdfunding platform offering investment opportunities in Bangalore, Chennai, and Hyderabad. The company offers crowdfunding opportunities with a return of 14-21% on your investments.
Crowdfunding platforms provide diverse investment opportunities in both commercials as well as residential sectors. By investing through crowdfunding platforms, you can also diversify your investment portfolio and reduce risk. The real estate market is known to be illiquid as it cannot be converted to cash quickly. However, this limitation of the real estate sector is also eliminated by making investments through these crowdfunding platforms.
2. Real Estate Mutual Funds
Diversifying your real estate portfolio by investing in real estate mutual funds is a great way to do so. The premise is similar to that of a mutual fund, in which the investor owns a share of the fund and the company owns the investments it makes. The earnings are distributed in the form of a dividend or a percentage increase in the value of the company’s stock. Real estate stocks and direct purchases of residential, commercial, and industrial properties are the primary investments of real estate mutual funds. It is more beneficial to investors with little cash as it will provide them an opportunity to reap the benefit of a high-ticket real estate project.
It’s crucial to remember that real estate mutual fund earnings are influenced by a variety of factors, including demand and supply demographics, market circumstances, and interest rates. Real estate mutual funds are a wonderful investment option for someone who wants to benefit from real estate market appreciation but does not have the money to buy a home, especially in areas like Mumbai and Delhi where property prices are sky-high.
The Real Estate Investment Trust is a specialized firm that invests in commercial real estate with both financing and equity. REITs, which were first introduced in 1960 to allow investors to participate in real estate as an asset class, are known to provide a minimum of 7-8 percent annual returns to small and middle-level investors. REIT investors, like mutual fund investors, own shares in the REIT and receive dividends based on the profitability of the REIT’s investments.
For the Indian real estate industry, REITs are expected to be a game-changer. They assist in the sponsorship of assets through trusts, allowing investors to become owners of a variety of properties even if they are unable to purchase them outright. According to REIT requirements, at least 80% of the value must be invested in revenue-generating properties, with the remainder being allocated to under-construction projects. REITs are mostly purchased by investors seeking higher income and long-term growth.
4. Real Estate ETFs
An exchange-traded fund, or ETF, is a single fund that holds a collection of stocks or bonds. ETFs are comparable to index funds and mutual funds in that they offer broad diversification and low overall costs. Investing in a real-estate-focused ETF can be a sensible option if you want to invest in real estate but also diversify.
For example, Vanguard’s VNQ is a real estate exchange-traded fund (ETF) that invests in stocks issued by real estate investment trusts (REITs) that buy office buildings, hotels, and other forms of property. IYR is a real estate exchange-traded fund (ETF) that works in a similar way, giving concentrated exposure to domestic real estate firms and REITs. There is a variety of alternative ETFs that provide real estate exposure, so do your research and think about your options.
5. Real Estate Wholesaling
Individuals can enter into the real estate sector by wholesaling real estate without having to invest a large sum of money to get started. It’s a type of property flipping in which an investor, sometimes known as a wholesaler, agrees to purchase a property that they believe is underpriced. The property is then profitably sold to the end-user.
The procedure assists a novice in gaining insight into the real estate market as well as learning crucial negotiation skills. The wholesaler makes money by charging a charge for each transaction, which is usually a percentage of the total property cost.
6. Flipping Houses
Buying a home, remodeling it (if necessary), and reselling it for a profit in the process of flipping houses. Investors buy homes that provide a lower-than-market price or belong to owners in desperate need of cash to make a large profit. After taking ownership of the home, the investors immediately begin publicizing the property listing to find potential purchasers.
Flipping houses necessitates a thorough understanding of real estate property types, valuations, and market conditions. A seasoned investor flips many houses quickly and is constantly on the lookout for suitable properties to purchase.
7. Real Estate Syndication
Real estate syndication, like crowdfunding, entails going out to investors to raise funds for significant real estate projects such as condominiums, hotels, and commercial spaces. Investors receive a portion of the company in exchange for their cash.
The syndicator is in charge of raising finances, locating and purchasing the property, and overseeing the entire process. The syndicator must be an accredited investor to participate in real estate syndication. As a result, only experienced investors and HNIs should consider this alternative (High Net worth Individuals).
Diversifying into real estate can yield significant returns while posing little risks. Be prepared, though, to do your homework and conduct some experiments to determine the best possibilities for you. Don’t expect to get wealthy quickly, and before making any decisions, think about your financial goals, budget, and expectations.
While making your investments in the real estate sector make sure to estimate your affordability. If you are low on your cash balance, then you may invest in the real estate sector through leverage.
However, make sure that you check various banks and their interest rates before finalizing the same. Lastly, the most important point is to make sure that you are investing right by carrying out the due diligence process with the help of trustworthy partners such as Assetmonk and evaluate the profit that could be earned from your investment.