Active Real Estate Investing
Active real estate investing requires a large amount of real estate know-how and hands-on management. Ensuring the success of a property requires responsibility and experience; active real estate investors need both analytical and negotiation skills to improve their cap rate and overall return on investment.
Types of active real estate investing:
House-flipping is the most active, hands-on way to invest in real estate. To “flip” a home, an investor purchases a home, makes necessary renovations to improve its value on the market, and then quickly resells it at a higher price.
Rental properties require a lot of hands-on management, but unlike flipping homes, they have a long-term investment horizon. Property owners earn cash flow usually on a monthly basis in the form of rent payment from tenants. This provides a steady, reliable income stream for investors, but it also requires a lot of work or delegation to ensure that operations are running smoothly.
Passive Real Estate investing
Passive real estate investing offers opportunities to invest in real estate for both people with extensive real estate and financial knowledge as well as those with limited or no expertise. Passive real estate investors typically provide capital and allow professionals to invest in real estate on their behalf. As with stocks and bonds, passive investors bear responsibility only for their investments.
Types of passive real estate investing:
Private Equity Fund
A private equity (PE) fund is an investment model where investors pool their money into a single fund to make investments. They are usually partnerships with a manager or management group. While the manager actively manages the fund’s investments, investors are not required to be directly involved on a regular basis. Access to private equity funds is generally limited to accredited and institutional investors with high net worth. Investment minimums can vary, but are usually not less than $100,000.
A real estate investment trust (REIT) is a company that makes debt or equity investments in real estate. Generally, REITs offer a portfolio of real estate assets to investors. Investors buy shares of the company and earn income in the form of dividends. Today, REITs can be categorized according to investor access in three ways: private REITs, publicly-traded REITs and public non-traded REITs.
Private REITs are not registered with the SEC and are not publicly traded in the stock market.
Publicly-traded REITs are registered with the SEC and traded in the stock market.
A public non-traded REIT is somewhat of a cross between a publicly-traded REIT and a private REIT. They are registered with the SEC, but not traded on the stock exchange.
Online Real Estate Investment Platforms
Online real estate platforms pool investments and invest in real estate investment opportunities that would otherwise be difficult to find. Real estate platforms offer investors the ability to invest in single investments or a diversified portfolio of real estate. Many real estate investment platforms carry restrictions such as accreditation requirements and high investment minimums.
Real estate investing offers great potential to earn significant returns. It can become a valuable source of cash flow in your investment portfolio when managed wisely. Compound makes it easy and understandable for you to get started.