Real Estate
The Real Estate Investment Spectrum: From "Forget about it" to Power Renovator
Ever thought about diving into the vast ocean of real estate investment but found yourself overwhelmed by the options? Whether you're the type to lean back and watch your investments grow or someone who gets a thrill from swinging hammers and scouting properties, there's a spot for you in the real estate world. Let's break down the myriad ways you can grow your wealth through real estate, from the blissfully semi-passive to the intensely active.
For the Hands-off Investor: The (Semi)-Passive Path
1. **REITs (Real Estate Investment Trusts)**: Think of REITs as mutual funds for real estate. They're companies that own or finance income-producing real estate across a range of property sectors. You can invest in them just like stocks, enjoy dividends, and not worry about getting a call about a broken toilet at 3 AM.
2. **Real Estate Syndications**: This is where you pool your money with other investors to buy a property, usually something bigger like an apartment complex or a commercial building. It's hands-off, but you get a slice of the profits. One of the main points to keep in mind with this option is that it usually requires being an accredited investor which for many physicians in practice for a few years isn't hard but during residency, working part time or for lower paying specialties it may take much longer to reach accredited investor status.
3. **Hard Money Lending**: Fancy being the bank? Of the various ways to invest in real estate one that gets less attention is hard money lending. This can be done directly with contacts in your network or through sites like Groundfloor where they act as the middleman and provide access to those needing funds for the rehab or new construction and for those wanting to invest in these projects with typical returns between 9% - 12%.
For the Hands-on Investor: The Active Arena
1. **STR (Short-Term Rentals)**: Thanks to platforms like Airbnb, you can rent out part of your home or a whole property for short stays. It requires more day-to-day management, but the income potential, especially in high-demand areas, can be significant. The tax implications of owning and self-managing some STRs can be immensely beneficial as it can count as active real estate investing and allow you to write-off "losses" (think renovations, new furniture, new roof, etc) against your W-2 income leading to a lower tax bill.
2. **Fix and Flips**: The HGTV dream. You buy a property that needs work, renovate it, and sell it for a profit. It's hands-on, risky, and can be incredibly rewarding. Just make sure you know a good contractor (or become one).
3. **House Hacking**: Live in your investment by purchasing a multi-unit property, living in one unit, and renting out the others or own a single family home and rent out rooms in it. Your tenants help pay your mortgage, and you learn the ropes of being a landlord.
4. **Storage Units**: Not as glamorous as flipping houses, but storage units can be a steady source of income with relatively low maintenance compared to residential properties.
5. **Buy and Hold Long-Term Rentals**: The classic investment strategy. Buy a property, rent it out, and hold onto it for years. It's a way to build wealth slowly and steadily, with the rent covering your expenses and then some.
6. **BRRR Method (Buy, Rehab, Refinance, Repeat)**: For those who love the thrill of the deal. You buy a property that needs work, rehab it, then refinance it at its new, higher value to pull your cash out and do it all over again.
Finding Your Real Estate Squad
Regardless of the path you choose, you'll want an investor-friendly realtor by your side. Why? Because a realtor who also invests in real estate gets it. They understand the metrics you're looking at, like the rent-to-price (RTP or RTV rent-to-value) ratio, and they won't blink when you ask about cap rates or cash-on-cash returns.
Leveraging Community Knowledge
Where do you find such a realtor, you ask? Dive into the forums and resources at BiggerPockets. It's the Facebook-meets-Wikipedia of real estate investing. You can connect with realtors who speak your language, pick their brains about where to invest, and even find your future property management team or a CPA who doesn’t glaze over when you talk about bonus depreciation.
The Bottom Line
Real estate investing can fit a wide range of involvement levels, from passive investors content with a hands-off approach to those who relish the direct control and potential profits of active involvement. The key to success? Educate yourself, know your comfort level with risk and management, and build a network of experienced professionals who can guide you along the way. Happy investing!