Is real estate investing a good side hustle?
Well, when it comes to diversifying income or looking for ways to make extra income, real estate investing seems to be one of the most common options that is recommended.
This is certainly for good reason. Real estate investing can be an immensely lucrative side hustle opportunity, and there are plenty of ways to get started in the industry.
However, investing in real estate can also be a major decision to make, and an inexperienced investor can quickly get burned if they don’t know what they are doing.
So, I’m going to break down some of the most common ways to get started with real estate investing, as well as some common mistakes you should avoid.
1) Get Involved With REITs:
REIT stands for real estate investment trust, and refers to a company that owns a group of real estate operations that generate capital. For example, the Digital Realty Trust is one of the largest REITs in the world, and has a market cap of over $20 billion.
So, just as you might in an ETF that focuses on the energy sector or banking, you can invest in REITs to start getting your foot in the door of the world of real estate.
REITs are a great option to get started with real estate investing without needing a lot of capital or taking on too much risk. Many REITs have holdings like income paying properties, apartment complexes, and business buildings, so you can benefit from owning a small slice of the pie without having to purchase a building yourself.
Plus, many REITs actually pay dividends, so this can be a great way to generate some passive income.
2) Become a landlord
My brother recently became a landlord in a popular college town, and let me tell you, the rewards can certainly be worth it if you are willing to put in the work and some capital.
The idea of renting out your home is already becoming more popular thanks to gig apps like AirBnB and the gig economy in general, but the idea of renting out a building for income isn't anything new.
Buying a condo or home for the purpose of renting it out to students or family is a more serious way to get started in real estate investing, but you may find you are able to pay off your entire mortgage over the years from the rent you charge your tenants.
Now, becoming a landlord isn’t easy work. Outside of requiring the capital for a down payment, you need to consider a few other factors such as:
- The average monthly rent for a similar building in your area.
- The cost of property taxes, maintenance fees, condo fees (if applicable), and future upgrades.
- The cost of insurance.
- The turnover rate of tenants and if you can reasonably expect full or almost-full occupancy.
- The risk of damage – especially relevant for student towns.
If the math checks out and you are willing to take on a rental property to earn from a holding in real estate, this might be the right path to take!
3) Flipping Houses
If you’re decently handy and have experience with home renovation projects, flipping houses is a third way to make money through real estate.
Houses or condos in need of some serious TLC go on the market all the time. Age, neglect, or changes in design preferences can make a house feel outdated and in need of repair. If you can successfully identify a house that has room for improvement and would remain reasonable terms of the cost to upgrade, you might have a potential flipping opportunity on your hands.
However, keep in mind you will have to invest a fair amount of ‘sweat equity’ into your flip. Projects like refinishing a bathroom, basement, or even jobs like painting can take time and money.
Additionally, always be sure to have a professional appraisal and inspection of your property. You don’t want surprise expenses like the need for a new roof or plumbing problems to cut into the margin you hope to gain from flipping the property.
How To Avoid Getting Burned With Your Investment
As mentioned, getting involved in real estate investing can sound like a dream come true. I mean, who doesn’t want to own an income-producing asset or diversify their income?
If you want to reduce your overall risk, here are some key pieces of advice to keep in mind.
1) Never invest more than you can afford to lose: It doesn’t matter if you’re just dabbling in REITs or building an investment portfolio/asset group that is almost entirely based in real estate. Never invest money that your life depends on.
2) Do your due diligence: Research the companies you buy or any property you are considering thoroughly. Don’t be afraid to ask for professional help either.
3) Diversify: Real estate investing is an incredible opportunity, but this doesn’t always mean you should turn your back on other income producing options like investing in ETFs or mutual funds.
4) Be realistic: Don't take on more than you can handle, and have reasonable expectations for the type of returns you will see in a given year.
Well there you have it folks!
If you have ever wanted to dabble in the world of real estate investment but haven't known about the options, here are 3 common ones to consider!
Hope you enjoyed!