Real estate investing doesn’t always involve becoming a landlord.
There are several ways to create an income stream using your own home.
Some real estate investment opportunities are quite speculative but could pay off.
Buying your own home is one way of investing in real estate, but it’s certainly not the only way. In fact, you could remain a renter forever and still become a property investor, depending on whether you adopt an active or passive strategy.
Though real estate has a certain amount of risk like any other investment, it could pay off in a big way. Here are some ways to get started in real estate investing, whether you’re looking for an active or a passive investing approach.
What’s the Difference Between Active and Passive Real Estate Investing?
Active real estate investing involves being hands-on with a rental property, whether you own the home you live in or another home where you collect rent from someone who lives there.
Want a real estate investment that doesn’t involve being a landlord? While passive investing requires some cash to get started, it can turn into a set-it-and-forget-it type of investing. And yes, it’s possible to make money in your sleep. Let’s continue onto our list of investment strategies.
1. Purchase an Investment Property
While being a landlord isn’t everyone’s cup of tea, it’s certainly one of the best ways to build income as a real estate investor. Whether you purchase a single-family home, a multifamily home, or an entire apartment complex, collecting rent from tenants who live in your investment property can be a long-term source of income.
Don’t relish the thought of getting a late-night call that a sink is overflowing? You can always hire a property manager who can take on the day-to-day management of your rental property.
2. Start House Hacking
Another effective way of diving into real estate investing is to purchase a home, live in one part of it, and rent out the rest of it to tenants. This method is known as house hacking, and it’s a clever way for investors to generate income from their own homes. Depending on the size of the property, you could make enough money so that your tenants are paying for your entire mortgage—allowing you to live for free under your own roof.
House hacking is a way to start real estate investing while simultaneously reducing your living expenses. Keep in mind that this strategy may require sharing common or living spaces with short- or long-term renters.
3. List Your Home as a Vacation Rental
Do you own a vacation home that sits empty for several months out of the year? Or do you spend a considerable amount of time away from your primary home? You might want to consider listing your home on a vacation rental listing site, such as Airbnb or VRBO. These sites make it easy for individuals to create listings and make extra income using their own homes or investment properties for short-term stays.
4. Build an ADU on Your Property
An accessory dwelling unit (ADU) is a smaller secondary residence located on the same property as a single-family home. Examples of ADUs include a basement apartment, a converted garage, or an in-law cottage built in the backyard. As long as you convert the space to comply with the local building codes, you can rent it out for income.
Investing in an ADU is a great option for homeowners who don’t have the funds or inclination to buy a separate property, but would like to create an income stream using their own property. Like house hacking, the rental income from an ADU could pay a good deal of your current mortgage or contribute to long-term savings goals.
5. Fix and Flip a Property
Flipping houses isn’t as easy as a 30-minute home improvement TV show will lead you to believe. But it can be a lucrative method for investors with an entrepreneurial spirit who are not afraid to get their hands dirty with some renovation work. It can be a time-consuming endeavor to find bargain properties, but people who have the patience to fix them up and then “flip” them by selling to a new owner could reap a tidy profit. Be sure to hire the appropriate professionals, such as local contractors, to help you through the fix-and-flip process.
6. Purchase Shares of Real Estate Investment Trusts (REIT)
Instead of investing in actual homes, you can purchase shares of real estate investment trusts (REIT), which are companies that own properties in various sectors—everything from office and retail space to hotels and hospitals to industrial warehouses and data centers. REITs are required to pay out 90% of their taxable income to investors via dividends, so this profit can add up over time.
You can add REITs to your stock portfolio through the brokerage of your choice. Depending on how much money you invest, those dividends can add up nicely and represent a steady passive income over time. Like other stock investments, it’s better to buy and hold REITs for at least five years (preferably longer) to see the most return on your investment.
7. Join the Crowd With Crowdfunding
Have you ever donated to an online fundraiser? Real estate crowdfunding works in a similar manner. You might not have the funds to buy an entire office building on your own, but it’s possible to join a group of investors who collectively can finance it.
Many crowdfunding platforms make it easy for you to open an investing account — and no, you don’t have to have tens of thousands of dollars lying around to do it. Of course, the more money you put in, the more of a stake you own. There are investment opportunities for beginners and more seasoned investors, so you can review opportunities and choose those that align with your budget and risk tolerance.