A Beginner's Guide to Real Estate Investing
What is real estate investment?
Simply put, investing in real estate entails purchasing a property but not using it as a primary residence. Instead, you use this property to generate income.
The property doesn’t necessarily have to be residential, it could also be a space that is to be used for commercial purposes.
Investing in real estate is an excellent way to build a passive income. And it can be extremely lucrative. What is all this about? Let’s dive in!
Investing in real estate is simpler than you’d think: you invest money in real estate- land and associated buildings that are fixed to the ground- with the intention to achieve a return to earn more money than you originally invested.
That sounds simple enough, but how do you start investing in real estate?
3 ways to look at real estate investment
Okay, sure, creating passive income sounds nice. But that leaves us with the question: how does one start investing in real estate?
1. Buy a rental property
This is the most straightforward and common way to invest in real estate. You invest in a piece of real estate, for example, a condo or an apartment. And then you rent it out to tenants. It may seem obvious, but to be able to do this, you have to actually buy some real estate. So, you do need to have quite a bit of capital to start with. There are also maintenance costs and other secondary costs that you need to take into consideration beforehand. You also have to think about how fast you’ll be able to successfully rent out this property. For eg: a situation could arise wherein a month goes by without tenants, and you have no income from this specific investment.
However, if you have sufficient funds to make this happen comfortably, it is definitely an investment opportunity you should consider. Sales prices keep increasing, which means you’ll more than likely see a big rise in value from your investment in the long term. You could also start out small. How about renting out rooms in the house you already live in? With the money you earn, you can eventually buy more property.
2. Invest in Real Estate Investment Trusts (REITs)
If buying an actual property isn’t an option for you, you can also explore buying REITs. REITs ( Real Estate Investment Trusts) enable anyone to invest in real estate. Either directly or through a mutual fund or an ETF. In the same way that shareholders benefit from owning stocks in corporations, as a stockholder of a REIT, you earn a share of the profit through real estate investment.
There are roughly two kinds of REITs.
- Equity REITs - own a wide range of property types. Think offices and apartments but also data centers and cell towers. Most of the income in equity REITs comes from rent on the properties.
- Mortgage REITs - These earn most of the revenue in interest from investments in mortgages and mortgage-backed securities.
Is it a good idea to invest in REITs? Well, that all depends on many factors: the kind of REIT you are investing in, your risk appetite, your financial goals, etc. Some REITs can come with high risk and if you’re new to the world of investing, it may be better to only invest in publicly traded REITs. You can buy these from brokerage firms. To do so, you will at the very least need to create a brokerage account. Be sure to thoroughly research this investment option to find out about other prerequisites and associated risks before you make this a part of your investment portfolio.
3. Make an investment in an Online Real Estate Platform
Also known as real estate crowdfunding, you can invest in big-scale real estate along with other investors on certain online real estate platforms. You will still need to invest a significant amount, to begin with. You would need to also pay management fees to the online real estate platform. While looking for investment options, always remember to make a note of additional costs like these. All costs combined, this investment option will most likely still require a lot less money than what you would need to purchase actual real estate all by yourself. Look at it this way, online real estate platforms can be a great way to invest in real estate when you’re not able to buy a property by yourself.
A downside to this type of investing is that it’s speculative and not liquid. Meaning that you can’t easily back out of your investment to ‘take your money and go’. Real estate investments in general are not as easy as investing in stocks or cryptocurrency, for example.
Advantages of investing in real estate
Just in case you’re still wondering “why invest in real estate?” have a look at some of the advantages:
- Investing in real estate allows you to start a passive income stream for yourself.
- Real estate will always exist, and there will always be a demand for homes if you consider the rate at which population is growing across the world.
- It could be a smart way to protect your investment portfolio against inflation.
- The returns may not be the highest as compared to other forms of investments, but they are still significant enough.
- You can use this income to reinvest in other real estate, continuing to expand your real estate with more returns and more income. Or, you could reinvest it in other assets.
Investing in real estate: what must you be aware of?
Like most investment options, investing in real estate also comes with some risks that you must be aware of:
- You often need to invest a significant amount of your own funds (at least 20%) to purchase the real estate.
- You have to take all maintenance costs into account.
- There could also be some unforeseen costs that you need to account for, eg: repairs due to general wear and tear, insurance and so on.
- You will have to ensure that your property is rented: no tenant means no income while the costs for maintenance and mortgage continue.
The BOTS app and real estate
The BOTS app does not currently enable users to directly own real estate via the app. But, we're happy to announce that we recently launched a ‘first of its kind’ bot looking to combine crypto trading and the real estate market - the Unreal Estate bot! This bot aims to provide investors with an annual 6% reward on BUSD deposits. Download the BOTS app for more details on how this bot works, read about the associated risks, and more.
How can you trust these bots? The bots in our app are developed by specialized developers and work through algorithms, artificial intelligence, and machine learning. A bot doesn’t eat, sleep, take breaks, or get stressed out when the market dips. This means that a bot can respond to market changes right away: no matter the hour. And there you have it, in a nutshell: this is how we are making investing easy and hassle-free for everyone.
This blog is for educational purposes only. The information we offer does not constitute investment advice. Please always do your own research before investing.
Any views expressed in this blog and by BOTS do not constitute a recommendation that any particular cryptocurrency (or cryptocurrency token/asset/index), portfolio of cryptocurrencies, transaction, or investment strategy is suitable for any specific person.