There are a number of ways to increase your retirement wealth, but one of the most effective is through passive income. Passive income is a steady stream of income that you earn from past business activity as opposed to activities you perform today. For instance, when you work to earn a paycheck, that is active income because you have to do something right now to earn an income. On the other hand, if you write a book and receive royalties on the sales of that book for a period of 20 years, that income is passive because you’ve already done the work and earn your income on past labor.
Passive income allows you to increase your current standard of living as well as save for your future retirement. Instead of spending the extra income you earn from your past work efforts, you could invest it and save it for retirement. Here are some three ways to earn a passive income from real estate.
- Renting – If you don’t mind being a landlord, you could buy up properties and rent them out. There are several ways to earn passive income from rental units. You can purchase single-family homes and rent them out as long as you don’t mind looking after each property. Another option is to specialize in multi-family units like apartment buildings and condominiums. With that strategy, you can have several rental units with one property. Commercial properties are another option. With this method, you can invest in shopping malls and shopping centers, rent out space to other businesses, and earn a passive income from that real estate. The advantage to commercial rental property is that these tenants tend to be long-term, as in 10 to 20 years, as opposed to 6 months to a year for residential renters.
- REITs – Real estate investment trusts are like mutual funds but the investments in the fund are real estate properties. When you buy shares in a REIT, you are buying a part of the real estate investments within the fund. It’s similar to buying stock. Over time, the REIT will pay out dividends and you can reinvest those dividends in the REIT or in other types of investments.
- Marketplace lending – A third way to earn passive income from real estate is with marketplace lending, also called real estate crowdfunding. Through platforms like Sharestates or Syndicate Profile, you can find properties to invest in that are either debt instruments or equity vehicles. Debt-based crowdfunding means you are loaning your money, along with other investors, to a property owner or developer to use for a project. That money will then earn a passive income for you until the loan is paid off, usually up to 12 months. Equity-based real estate crowdfunding allows you to buy interest in a real estate project, again, along with other investors, and when that property sells, you get back a return on your investment equal to the portion of equity you purchased in that real estate. Many marketplace lending investors reinvest their earnings through the platforms, building up a retirement nest egg of passive income returns.
There are other ways to earn passive income, but real estate is one of the most lucrative ways to earn for your retirement.
Real estate crowdfunding (RECF) gives investors and deal sponsors the ability to connect with each other and earn high returns from that connection. As a deal sponsor, you might be wondering what types of investors actually use real estate crowdfunding websites. Here are four common types of private real estate investors that use RECF platforms like Sharestates.
- Experienced accredited investors diversifying their portfolios – Experienced investors know the only way to truly protect their wealth is to diversify their holdings. That’s why you’ll often see stock investors or investors who hold a lot of traditional investments seek to diversify by exploring alternative asset classes such as real estate and commodities. It also works the other way around. Experienced real estate investors in a down market will often seek to move or hedge their real estate holdings with other, sometimes even traditional, asset classes.
- Traditional investors new to RECF – The difference between this type of investor and the experienced accredited investor looking to diversify is that the above type of investor may have experience with RECF but has chosen to make other asset classes their primary interest. Another difference is that traditional investors who have never tried real estate crowdfunding may not be accredited. Some RECF platforms do accept non-accredited investors, which could change the dynamic for accredited investors.
- Private investors looking for better returns – Sometimes it’s not about hedging your current investors or diversifying. It may simply be that an investor wants higher returns. A bond investor, for instance, may not be satisfied with 2%-5% returns. Therefore, either they’ll transfer some or all of those investments into an asset class that is somewhat riskier and promises higher returns, like real estate crowdfunding, or they’ll add RECF as an asset class to their portfolio, which also effectively diversifies it. They can kill two birds with one stone.
- Institutional investors – Institutional investors, like individual investors, want to get the highest returns possible on their investments. Therefore, they’ll consider RECF for all the same reasons an individual investor would.
RECF Requires Due Diligence, Not Empty Promises
Like any kind of investing, RECF requires the private investor to undergo certain due diligence protocols in order to ensure that they can invest. There is no guarantee of a return on most investments. In general, the higher the potential reward, the higher the associated risk.
There are some things, however, that may impact the returns investors see through real estate crowdfunding. Here are a few of the ways RECF investment can be impacted:
- Downturns or upturns in the real estate market: Market conditions always have an effect on investments, positively or negatively.
- The reputation of the RECF platform: This is one of the most important factors affecting real estate crowdfunding investments. Make sure you do a thorough check on the leadership, experience, track record, and quality of deals on any platform you intend to invest or list your deals through.
- The quality of available real estate deals – Does the platform list questionable deals or investment opportunities that seem too good to be true, or that have hidden risks?
- Underwriting practices – Make sure you investigate the RECF platform’s underwriting procedures. Are there any red flags?
- The state of the macroeconomy – The overall economy plays an important role in real estate investing, as does local market trends.
- The reputation and experience of the deal sponsor – While many platforms vet their sponsors, investors should perform their own due diligence and assess the borrower’s track record.
- The mix of assets with the RECF asset class: Investing too heavily in one asset type (single-family rentals, for instance) and not enough in others could create an imbalanced RECF portfolio.
RECF opportunities are still continuing to grow. If you’re an investor looking for higher returns or to diversify your investment portfolio, you should give it ample consideration. For deal sponsors, RECF offers opportunities to get your projects funded through debt or equity arrangements.
For more information about real estate crowdfunding with Sharestates click here.
Every day, it seems, there’s a new crypto lending firm opening its doors. In fact, the entire crypto ecosystem is growing by leaps and bounds, but there are just as many naysayers as there are true fans, and the world’s leading financial experts have weighed in on their prognostications, which range from ice cold to steaming hot. But let’s take a deep breath and ask one question I haven’t heard anyone ask yet: On its best day, does crypto lending have the same promise for consistent returns that marketplace lending (MPL) has to offer?
Marketplace Lending’s Continuously Growing Track Record
For any investment, it’s important to perform some due diligence. Every investor has their own criteria when it comes to judging the value of an investment, but there are some criteria that seem to pop up quite often on almost everybody’s list. One metric serious investors like to look at is the track record. Sharestates, for instance, in its 34-point underwriting process takes a look at sponsor track record to determine whether or not to present an opportunity to the marketplace. This track record has to do with the investor’s experience and success regarding real estate deals in general and the specific type of deal (for instance, multifamily) in particular. This is such an important metric that I’d hasten to say that Sharestates wouldn’t continue to grow and expand without its unique approach to underwriting. Compare return statistics.
Veteran marketplace lending investor Peter Renton has been sharing his personal quarterly returns from MPL investments for years now. His blog post from November 22, 2017, for instance, shows a return of 6.64% for the year ending September 6, 2017. By contrast, his results from Q3 2015 yielded a whopping 10.69% return. View Sharestates’ performance statistics.
Marketplace lending has come a long way since Zopa was launched in the United Kingdom in 2005. There has been an ever-growing specialization and branching out into new subsectors with new opportunities for accredited and unaccredited investors in real estate and other verticals, an increasing number of securitizations in recent years, and partnerships between companies serving the sector as well as with traditional financial institutions. While the sector has had its share of bumps in the road, it is entering into a phase of maturity that has been fought for and long-expected. By contrast, the oldest crypto lending platforms are barely a year old.
The Dark and Gloomy World of Cryptocurrencies
My intent here is not to cast aspersions on or to speak ill of cryptocurrencies or crypto lending. Rather, I hold a few cryptocurrencies myself and have accounts with some of the largest crypto exchanges. But the reality is that, as it stands now, the crypto ecosystem is still unregulated, volatile, and full of scams.
Because of its unregulated status, though this is expected to change soon, cryptocurrency prices fluctuate rapidly. On May 14, 2018, for instance, Bitcoin jumped from $8,446.72 at 07:09 a.m. to $8,807.53 at 12:09 p.m. This kind of volatility makes it difficult to lend because, for borrowers, by the time a loan application is approved and the loan is disbursed, the value of the crypto could have deflated so much that its value has been lost. Almost daily, scams are being busted by governments all over the world. The Wall Street Journal conducted a study of over a thousand initial coin offerings and found red flags in hundreds of them.
In contrast, marketplace lending has attracted institutional investors that would not put their money at risk without a strong regulatory system in place, price volatility kept in check, and the risk of loss mitigated by strong underwriting procedures backed by reputation. While I am confident the problems with crypto lending will be worked out over time and that investors seeking consistent returns can realize that potential, at this time, marketplace lending is safer, proven, and looks to maintain its track record for the foreseeable future.
In case you slept through 2017, there was a new funding mechanism that earned startups billions of dollars. In fact, VentureBeat reported last August that initial coin offerings (ICOs) raised $1.3 billion in the first eight months of 2017. That’s just a small slice of the $21.8 billion raised by all startups through venture capital sources from January through August last year. It seems that ICOs are growing bigger as they grow more popular.
The DAO raised $152 million last May. In July, Tezos raised $232 million. Filecoin topped that with $257 million in August. By the end of February 2018, more than $1 billion had been raised by over 900 ICOs since the beginning of the year. Topping that list is Telegram, which raised $850 million in a pre-ICO sale on its way to extracting $2 billion from the marketplace.
Something clearly is going on here.
ICOs and Real Estate Crowdfunding
There are primarily three reasons why ICOs have become such a hotbed of activity with no signs of letting up too soon.
- There’s no regulation. No SEC, no regulators, no fire-breathing dragons huffing down anyone’s shirt. That’s got to be a relief for ICO issuers.
- ICO issuers make big promises. All you have to do is read their white papers to figure out that many companies raising funds through ICOs are getting to the golden palace on very little evidence that they have anything solid to offer. If you don’t have a good idea, all you have to do is be good at selling it. That’s what the white paper is for. Of course, I’m not saying all ICOs, or ICO issuers, are bad. But how can you tell? There is virtually no way to perform due diligence on most ICOs, which is why so many are disappearing with the money.
- The third reason ICOs are so popular is sentiment. Many new investors are putting their money at risk because they know someone else who has. And since there are no rules about who can invest in an ICO, like there is with traditional and crowdfunding investments, there’s no one looking out after investor interests except the investors, many of whom are unsophisticated.
Why Real Estate Crowdfunding is Less Risky Than Investing in ICOs
While real estate crowdfunding is still relatively new, it’s still less risky than investing in ICOs. That’s because there is some regulation in place to protect investors, and companies that don’t follow the rules will be punished. That’s not to say that rules won’t be forthcoming for ICOs down the road (I believe they will be), but until there are some, investors are on their own.
By contrast, real estate crowdfunding has three things going for it that ICOs do not have:
- The JOBS Act of 2012 provides for some stability in the market by updating the Securities Act that U.S. companies have been regulated by for over half a century. Title III of this act addresses crowdfunding activities, and Title IV establishes Reg A rules. The Act implements new rules for real estate crowdfunding platforms that protect accredited and unaccredited investors alike.
- Credible platforms encourage due diligence. Any real estate crowdfunding platform worth investing through can be vetted with as much ease as it takes to perform due diligence on investment properties themselves. You can be confident that a proper vetting of any platform you wish to put your money into will reveal whether that platform is transparent, trustworthy, and credible. There should be no empty promises.
- Proven track record. Real estate crowdfunding has been around long enough that few people do it now because they are following the hype parade. Real estate crowdfunding has its earned its place at the investor banquet.
I do not wish to discourage anyone from investing in ICOs. They’re not all bad, but they are all risky. Do your due diligence on any investment you wish to make, and don’t invest more than you can lose.
Cash flow is important for any type of business, but real estate crowdfunding is a different kind of business that requires a carefully thought out plan for the end game. It’s more like investing than a traditional business, but it still requires an attentive eye to business technicals like cash flow, forecasting, and profit-loss analysis. Otherwise, you could end up losing your shirt.
The alternative to investing in real estate online using cash flow forecasting is debt. It isn’t recommended to invest in any vehicle, including real estate crowdfunding, with debt.
Capital Is King of the Marketplace
Businesses of all types need capital. In real estate investing, developers need capital so that their projects can be completed on time and put on the market. Like many businesses, if a real estate developer doesn’t have the capital to fund their projects, they may seek out a loan. Real estate crowdfunding offers them a marketplace of investors who will fund their projects in hopes of seeing a return on their investment. That said, like any kind of investing, real estate investing carries a certain amount of risk. The risk involved is dependent on a few details such as whether you have performed the proper due diligence, the nature of the project you are funding, and where you sit in the capital stack. The riskier the investment, the more important it is that you be able to adjust your portfolio, if necessary, to offset potential losses.
If you were around during the mortgage crisis, then you likely know that a ripple effect in the economy led to banks going belly up after using risky home mortgage instruments to fund even riskier asset-backed securities. They were borrowing money from Peter to pay Paul instead of using their own capital to make the risky investments. The crisis illustrates perfectly well why cash flow is important for real estate investing.
How to Navigate Cash Flow to Reach Your Real Estate Crowdfunding Goals
Everyone wants to see their investments grow. But it’s important to manage growth and to manage expectations. If you are new to real estate crowdfunding, start small. Keep some of your cash in reserve until you are comfortable with the platform and with the underwriting process used by the platform. Put a small investment on a few projects first and monitor those for a few weeks or months until you understand the nature of the investment vehicle.
As your real estate crowdfunding portfolio grows, and you get more familiar with the platform and the projects available, you can begin to invest more of your capital in projects that have the highest potential for return. I’d also encourage you to start with the more conservative investments first. Analyze the types of projects available for investing and don’t go deep into the capital stack on your first investments. Another way to protect your portfolio, and to ensure a positive cash flow, is to invest in different types of investments. Diversify your overall portfolio as well as your real estate crowdfunding assets so that maturity dates stagger and you tie up your capital in different types of deals (multi-family, single-family, industrial, commercial, etc.). This will help you manage your cash flow long term.
Finally, maintain some liquidity in your portfolio, and never invest more than you can lose.
Like many business sectors, real estate investing is shift toward an online market. That includes lending products such as bridge loans and hard money loans. Some of the factors influencing this shift are outlined below.
Hard Money Loan Versus Bridge Loans
Hard money loans are alternatives to conventional loans where private funding is secured by the value of the property loaned against. This typically leads to a faster closing for the loan as the lender isn’t as concerned with performing due diligence on the borrower as she is with ensuring the property is a sound risk.
Bridge loans are short-term loans used to aid in the purchase and renovation of real estate. They can be used for the down payment on a new home while awaiting the sell of the old home, or they may be used to acquire and renovate an investment property when the risk is too high for traditional lenders. The bridge loan “bridges” over the time between when the borrower buys the property and when he or she can put more permanent financing in place.
A bridge loan can be a hard money loan, but it isn’t necessarily the case. The fact that more hard loans are funded by private investors means they work perfectly in marketplace lending.
5 Reasons Why Bridge Loans and Hard Money Loans Perform Well Online
- Online lending is speedy and efficient – Technology cuts costs and makes the lending process more efficient by reducing steps and streamlining the path from application to underwriting.
- The JOBS act of 2013 – The JOBS Act of 2013 updated the Securities Act of 1933 by allowing emerging growth companies, job creators, and startup enterprises—including real estate companies—the ability to raise capital by publishing public calls and raising funds through online platforms. By recognizing the validity of the marketplace lender, the JOBS Act paved a new path for equity crowdfunding, debt and equity real estate fundraising, and other fundraising similar to these. The JOBS Act also expanded the pool of investors by paving the path for non-accredited investors to participate in these funding calls.
- Artificial intelligence and machine learning – Artificial intelligence (AI) and machine learning (ML) technologies allow companies to cut costs, assess risk, predict loan defaults, and offer deal matching insight without relying on human blood, sweat, and tears. AI and ML algorithms can process thousands of gigabytes of data in a shorter time frame than humans can analyze a couple dozen.
- Millennials have buying power and are comfortable with technology – Millennials are now the largest living generation alive. Having grown up with computing technology at their fingertips and coming of age with mobile technology entering the mass adoption phase, the youngest adult generation is very comfortable using technology for many tasks that older generations do not yet feel comfortable. That’s why the millennial generation is the first generation to adopt mobile banking applications. They are also comfortable with borrowing money through online platforms.
- Banks have shut the door on small businesses – After the financial crisis, banks cut down on small business lending. That included loans for commercial real estate, bridge loans being one of the big slices in the lending pie. Online platforms arose to fill this need for small businesses offering everything from merchant cash accounts to bridge loans. It was only natural that hard money loans for small and individual investors would follow.
Real estate investing, like so many other industries, is in state of reformation thanks in large part to technological innovation. One of the most powerful innovative new technologies transforming real estate investing today is artificial intelligence (AI). Below are six ways AI is changing real estate investing for the better.
1. Chatbots – One of the most obvious ways artificial intelligence is transforming the entire real estate industry is with chatbots. A wide range of real estate companies from brokerages to real estate crowdfunding platforms are incorporating chatbots into their websites. Chatbots allow companies to save on customer service costs and optimize time spent answering questions by allowing a virtual assistant to answer common questions that don’t change from customer to customer.
2. Investor Analytics – Real estate investors can set income and growth goals and have them monitored by an intelligent robot, who can assess risk based on investor parameters and makes adjustments as necessary to help the investor reach their financial goals more efficiently.
3. Predicting Loan Defaults – Real estate crowdfunding platforms can use artificial intelligence to predict loan defaults, which increases investor profits. By predicting defaults, the risk assessment process is more efficient and platforms can focus on profitable investments while reducing nonprofitable ones.
4. Deal Matching – Real estate investors can set their investment criteria and be notified when a deal matches their criteria. For instance, if an investor is interested only in a first lien position on commercial properties earning at least 10% returns, they can set those criteria on their investor dashboard and get a list of properties matching those criteria while also excluding properties that do not fall within their desired investment parameters.
5. Construction Automation – Builders and property developers want to optimize their expenses and increase their returns, just like any investor. A new crop of tools known as proptech are being developed to help builders automate the material purchasing process that allow them to acquire the best materials at the best price from the best suppliers. By letting the robots handle materials acquisition, construction companies can cut down on expenses and increase profits using artificial intelligence as the main technological driver.
6. Property Management – Artificial intelligence can be used in property management to monitor and predict when critical maintenance systems are ready for replacement. The technology is also useful in keeping tabs on rental trends in specific geographical areas and raise tenant rents automatically when leases expire. Other property management details such as building automation and expansion analysis can be performed by property management companies to determine potential returns based on critical inputs that impact rents, expenses, and profits in rental housing.
Artificial intelligence, and its close relative machine learning, is being used more frequently in all aspects of real estate, but its use in real estate investing allows private investors including builders and property managers effective ways to control expenses, increase returns, and manage risk using automated systems based on individual investor concerns. Technology like Sharestates’ Auto-Invest make real estate investing more efficient and effective.
Marketplace lending started as a very simple idea. It started as “peer-to-peer lending,” as it was called back then, because it allowed individuals, through the use of technology, to lend to each other under their own terms or terms mandated by the platform through which transactions were made. However, once institutional investors took an interest, the terminology changed to the current “marketplace lending,” although the concept remained the same.
In the last few years, real estate investing has integrated more with the marketplace lending model such that there are now over 100 real estate crowdfunding platforms in the U.S. alone. But why? What makes real estate investing and marketplace lending such great bosom buddies?
Technology, The Law, and Supply-Demand
I believe there are three reasons why marketplace lending and real estate investing have hooked up and make a perfect match. In short, it boils down to the law, technology and the law of supply and demand. First, let’s talk about the law.
JOBS Act of 2013
It wouldn’t be incorrect to say that lending started trending toward the marketplace model long before 2013, but the JOBS Act has certainly led to the proliferation of real estate crowdfunding platforms since its inception and implementation.
The Jumpstart Our Business Startups Act updates the Securities Act of 1933 by allowing emerging growth companies, job creators, and startup enterprises including real estate firms the ability to raise capital by publishing public calls, which was previously not allowed, and by raising funds using technology that did not exist in 1933. As a result, the JOBS Act paved a new path for equity crowdfunding, debt and equity real estate fundraising, and similar fundraising methods by recognizing the validity of a business business model—the marketplace lender.
How Technology Makes Real Estate Investing Simpler and More Affordable
Technology has a way of streamlining processes. By cutting down on the cost of capital acquisition for real estate projects, marketplace lending platforms like Sharestates provide developers, flippers, and other real estate sponsors a less expensive means of obtaining the funding they need to see their projects through to completion. By the same token, platforms offer real estate investors bigger returns by making investments public, accessible, and more secure through a centralized dashboard equipped with analytics, built-in risk assessment protocols, and trustworthy underwriting procedures. As a result, more people have access to real estate investments at greater returns.
The Law of Supply and Demand
The marketplace itself creates its own opportunities. When investors seek a service that doesn’t exist, savvy entrepreneurs go to work to supply the growing demand. Likewise, when an experienced entrepreneur pioneers a new service using existing technology that lowers costs, creates opportunity, and fills a marketplace demand, investors flock to those platforms. The law of supply and demand is as natural as commerce itself.
Marketplace Lending Makes Real Estate Investing More Accessible
Real estate investing existed long before marketplace lending, but marketplace lending has made it more affordable and more accessible to more people. This reality coupled with changes in securities law and the rise of technology has created a whole new real estate investing industry that before did not exist.
The real estate investing ecosystem in place before marketplace lending was available only to those investors who could afford it. Marketplace lending platforms provide similar opportunities to more people and, as a result, those investors can get in on the groundfloor of great opportunities for less investment than they would have been able to in the past. Sponsors of real estate projects can get their deals funded faster and by more investors than before. It is for these reasons that marketplace lending and real estate investing are a match made in heaven.
Multifamily real estate is one of the best alternative asset classes available. For one thing, you get all the advantages of real estate investing with the added advantage of income diversification. If a single-family tenant moves out, that’s 100% of your investment that is idle and not earning a return for however long it is vacant. If you have a duplex and a tenant moves out, you still have the rental income of the second tenant. If a fourplex tenant moves out, that’s only 25% of your investment that isn’t performing.
While the investment is larger, the potential return is greater, and as unlikely as it seems, it is easier to get a loan to purchase a multifamily real estate investment than it is to get a loan for a single-family real estate investment.
That said, here are eight ways a private investor can get in on a multifamily real estate deal.
8 Ways For Private Investors to Invest in Multifamily Real Estate
1. Cash – Cash always talks, and while you may not want to risk your liquid assets on your real estate investments, it is possible to purchase rental properties with cash or cash equivalents.
2. Trust – There are different types of trusts, and they make great vehicles for purchasing real estate with the added benefit of privacy.
3. Retirement Account – Whether you invest in multifamily real estate with your Roth IRA, a SEP-IRA, self-directed IRA, or self-directed Solo 401K, the idea is the same. You can use your IRA as a means of reinvesting and multiply your tax advantages.
4. Loan – Borrowing money for large investments like multifamily real estate makes perfect sense when you consider that optimal performance means paying off your loan in a reasonable amount of time while realizing long-term gains on your investment. Loans have to be paid back, but returns are keepers that can be reinvested for future earnings.
5. Real Estate Crowdfunding – Real estate crowdfunding allows you to invest in multifamily property investments without buying an entire property. You and several other investors pool your money to invest in a property sponsored by a developer, property rehab specialist, or rental property management company. There are generally two ways to accomplish this: 1) Through an equity arrangement where all investors own a percentage of the investment and receive returns on the back end when the property sells; and 2) Through a debt arrangement where you and all other investors loan the money that funds the project and receive dividends until the loan matures.
6. REIT – A REIT is a real estate investment trust that acts like a stock but consists solely of real estate investments. Some REITs focus on a single type of investment, such as multifamily or industrial, while others use diversification as a long-term strategy for maximizing returns. Either way, it’s a great vehicle for multifamily real estate investments and, thanks to modern technology, several REITs are available that automate the process and reduce investor fees.
7. 1031 Exchanges – 1031 exchanges allow investors to defer capital gains taxes by swapping a like-kind asset of lower value for one of higher value. If you already own real estate, you sell what you have, identify a property of greater value within the specified time period allowed by law, and make your purchase inside the exchange vehicle. This way, you grow your portfolio and defer your taxes at the same time.
8. Partnership – If you own raw land that isn’t earning you any returns, you can partner with a property developer to build a multifamily property on your land. Your returns can be structured by periodic dividends of rents paid by tenants, a flat fee of usage rights for the developer, or a combination of both.
Real estate investing is one of the most lucrative alternative asset classes and has resulted in thousands of people in the U.S. rising to millionaire status within a few years. While it does have its risks, it also has many rewards. Here are nine reasons real estate investing is a steady road to riches as opposed to a get rich quick promise that will likely go unfulfilled.
Ways to Earn Income by Real Estate Investing
1. Rental properties deliver ongoing passive income. Whether you buy and hold single-family residential properties or multi-family real estate, the opportunity to earn passive income can’t be beat. Sure, there are ongoing expenses, but well-managed properties earn investors monthly dividends for as long as they own the real estate.
2. Real estate crowdfunding makes real estate investing more convenient, affordable, and accessible to more investors allowing those investors to build diversified portfolios by spreading their money around in different types of real estate investments such as commercial, industrial, rentals, fix-and-flips, and more.
3. REITs are tied to the stock market but make your investment portfolio more diversified. REITs are popular right now because they don’t require investors to actually touch the real estate they own. This investment vehicle works more like a stock, but it’s real estate. Today’s REITs are earning investors consistent double-digit returns.
4. Real estate investments can be held in a self-directed IRA with your earnings re-invested, which will save you on capital gains taxes and increase your distributed earnings exponentially over time. Even real estate crowdfunding investments can be held in a self-directed IRA.
5. 1031 exchanges are another way to keep your investment earning by compounding the benefits on top of one another. The idea is to sell a piece of real estate that you own and buy another of greater value. By doing so, you avoid paying taxes on the gains of the first piece of real estate. There are strict rules you have to follow regarding hold times, property values, and property identification, but if you follow all the rules, 1031 exchanges can propel you to greater returns.
6. Property flipping can earn you short-term profits, which you can then re-invest for greater returns. Buying a piece of real estate, improving it, and putting it back on the marketplace is a great way to earn short-term returns. Re-invest those returns into the purchase of your next property. By growing your business slowly, you can walk your way up the financial ladder of success.
7. Now, investors can use cryptocurrencies to invest in real estate. It’s risky, but it is another channel that offers diversification and security in your real estate transactions.
8. Commercial leasing offers long-term benefits and passive income, too. Unlike residential rental properties, commercial leases tend to be long term, as in years. You can have a tenant for 10 or 20 years. Commercial office leasing is very lucrative.
9. Airbnb allows you to rent out a room of your home to travelers earning short-term profits from real estate not currently being used. You can rent out single rooms allowing you to capitalize on your own residence, a great option for empty nesters whose children have moved on and left empty rooms behind, or you can rent out entire properties for short durations. If you live near a tourist destination, this option allows you to compete with bed and breakfasts and other hospitality sector businesses without actually being in the hospitality industry. This could be a great way to earn extra income that you can re-invest in other real estate deals.
Real estate investing is getting better and the many faces of real estate crowdfunding is one reason why.