Owning and buying real estate can be a lucrative investment strategy. Prospective real estate investors can use leverage instead of stock and bond investors to purchase a property. They pay a portion up front, then pay off the balance plus interest over time.

A traditional mortgage requires a 20% to 25% downpayment. In some cases, a 5% downpayment is sufficient to buy an entire property. The ability to own the asset from the moment signed papers empowers landlords and real estate flippers. They can then take out second mortgages to their homes to make down payments for additional properties. These are five ways that investors can make money investing in real estate.

Method 1: Rental Properties

Rental properties are a great investment opportunity for those with the time and skills to manage tenants and do-it-yourself (DIY) skills. However, this strategy requires substantial capital to cover the initial maintenance costs as well as to cover any vacant months.

Positives:

• Regular income is possible, and property can appreciate

• Leverage helps maximize capital

• Numerous tax-deductible expenses are associated with them

Negatives:

• It can be difficult to manage tenants

• Tenants can potentially damage property

• Potential vacancies could result in a lower income

Method 2: Real Estate Investment Groups (REIGs)

These real estate investment groups are perfect for those who wish to rent property without having to manage it. However, REIGs require a capital cushion as well as financing.

REIGs can be described as small mutual funds which invest in rental properties. A typical real estate investment group consists of a company that buys or constructs a number of condos or apartment blocks and then allows investors to purchase them through it.

One investor can own one or more units of self-contained living space. However, the company that manages the investment group jointly manages all units. They handle maintenance, advertise vacancies, and interview tenants. The company receives a portion of the monthly rent in exchange for these management tasks.

An investor can own a standard real estate investment group lease. All units share a portion of the rent to protect against vacancies. You'll still receive income, even if your unit is vacant. There should be enough income to cover the costs, provided that the vacancy rate of the pooled units is not too high.

Positives:

• Renting is more hands-off than owning a rental

• Appreciates and earns income

Negatives:

• Vacancy risks

• Similar fees to mutual funds

• Unscrupulous managers are a temptation

Method 3: House Flipping

People with extensive experience in marketing, real estate valuation, and house flipping are ideal. You will need capital as well as the ability to make or supervise repairs as necessary.

Many property investors don't want to invest in improving their properties. The investment must have the intrinsic value to make a profit. Otherwise, they will remove the property from contention.

If a flipper is unable to quickly unload a property, they may be in serious financial trouble. This is because they don't have enough cash to pay off the mortgage over the long term. This can lead to snowballing losses.

Another type of flipper makes money buying affordable properties and then adding value to them by renovating them. This is a long-term investment that can be expensive if investors are unable to afford more than one property at a given time.

Positives:

• Capital is held in reserve for a shorter period

• Quick returns

Negatives:

• You need to have a greater market knowledge

• Hot markets cooling unexpectedly

Method 4: Real Estate Investment Trusts (REITs)

A realty investment trust is ideal for investors who wish to gain portfolio exposure to real estate without the need for traditional real estate transactions.

A REIT is a company or trust that uses investors' money for the purchase and operation of income properties. Like any stock, REITs can also be purchased and sold at major exchanges.

For REIT status to be maintained, a corporation must distribute 90% of its taxable profits through dividends. REITs can avoid corporate income taxes by paying 90% of their taxable profits in dividends. Regular companies would pay tax on profits and then decide whether to distribute the after-tax profits as dividends.

Stock market investors who want regular income can make solid investments in REITs, which are similar to regular dividend-paying stock. REITs allow investors to access nonresidential real estate investments such as malls and office buildings that are usually not possible for individual investors.

Additionally, REITs are exchange-traded and highly liquid. To cash out your REIT investment, you don't require a title transfer and a realtor. REITs, in practice, are a more formalized version of a real estate investment group.

When looking at REITs investors need to distinguish between equity REITs with buildings and mortgage REITs that finance real estate. Both offer real estate exposure, but the nature is different. An equity REIT is more traditional in that it represents ownership of the real estate. Mortgage REITs, on the other hand, focus on the income from mortgage lending.

Positives:

• Stocks that pay dividends

• These core holdings are usually long-term, cash-producing leasing agreements

Negatives:

• The leverage associated with traditional real estate property is not applicable

Method 5: Online Real Estate Platforms

These real estate investing platforms can be used by anyone who wants to invest in larger residential or commercial deals. Online real estate platforms are used to make the investment, also called real-estate crowdfunding. Although it still requires capital to invest, the amount required is much less than that for purchasing properties.

Investors looking for financing projects can connect with real estate developers through online platforms. You can diversify your investments without spending a lot of money in certain cases.

Positives:

• You can invest in a single project or a portfolio of projects

• Geographic diversification

Negatives:

• Lockup periods tend to make it difficult for people to liquidize their assets

• Management fees

The Summary:

Real estate investors can use their properties to generate rental income or wait for the right selling opportunity. It's possible to create a solid investment program by only paying a small percentage of the property's value upfront. Real estate is an investment that can yield profit, regardless of the market.