Real estate investing can seem like a big undertaking. From maintenance to paperwork, real estate attorneys to problematic tenants, there’s a lot of little details to manage.
It can be tough if you don’t have all of the necessary skills, particularly if you work full-time. Fortunately, there are businesses that understand this.
These days, there are ways to invest in real estate even if you don’t want to manage it all on your own. In this article, we’ll take a look at some of the ways you can do just that.
Why Should You Invest in Real Estate?
There are a few reasons why real estate investing makes sense. You may know about diversifying your portfolio and tax advantages. But another reason is cash flow.
Many investors put a heavy emphasis on investing in equities. While these are a powerful wealth-building tool, you are mostly depending on the growth of the stock (with the exception of dividend stocks, which it’s worth learning how you can live off dividends).
On the flip side, the biggest advantage of investing in real estate is the cash flow. For example, if you rent out a single-family home and charge $2,500 per month in rent, that is cold, hard cash rolling into your bank account.
Even if you have a mortgage on the house, anything left over after that (and any repairs) is pure profit. And that cash comes in every month.
If you own two, three, or four houses, those numbers only multiply.
The benefit with cash flow is that you aren’t just saving for the future; you have cash you can use now to cover your own expenses – and perhaps save some of it, too.
You Don’t Have to Become a Landlord
In theory, at least, owning your own investment properties should provide the best possible return. After all, owning your own properties is the true “DIY” of real estate.
Much like maintenance and repairs on your own house, you might save money by doing everything yourself on tenants’ homes.
But much like repairs on your own home, avoiding the stress of having to handle everything yourself could be well worth the smaller profit margin.
It really depends on your style. Some people like fixing things and doing everything themselves. But if you prefer being more hands-off, there is an easier way.
One Alternative: Use an Investment Property Marketplace
Normally, if you want to buy an investment property, you would have to buy that property through the same channels as you would any other home.
Then, if you wanted to use a property manager instead of managing the property yourself, you would have to find one separately.
These days, companies like Roofstock are simplifying the process. As you can see through this Roofstock review, it integrates many of those steps so you aren’t dealing with so many moving parts.
The site has a listing system much like Zillow or Redfin (check out these Redfin reviews for more information). The site has many useful features, including price and estimated appreciation.
If you eventually decide to purchase a property, Roofstock will pair you with a property manager. And the property doesn’t even have to be one in your area – they will pair you with a local property manager, regardless of your physical location.
When doing things the old-fashioned way, hiring a property manager isn’t always worth it. You have to do a deep dive into the cost vs. the cash coming in to determine if it’s worth it. When using a marketplace, all the costs are baked in, and it’s easier to know if a property is a good buy.
What about financing? Roofstock has that covered, too. They will connect you with lenders that can help finance the purchase of your rental properties. (Note: lenders typically require you to pay 20% down, so you will need some cash on hand.)
Doing things this way allows you to be completely removed from the process, which is great if you want to invest in real estate but aren’t exactly an expert.
And if you are paying in cash, you can close on your rental properties in as little as two weeks.
What Does a Property Manager Do?
If you are new to real estate investing, you may not be familiar with what a property manager actually does. As you might expect, a property manager handles the nitty-gritty, such as handling maintenance and repairs.
But property managers often handle all interaction with tenants, including collecting rent, advertising, and even showing the properties to prospective tenants.
In short, they handle just about everything for you; you only have to foot the bill.
Is Using an Investment Property Marketplace Worth It?
Whether this arrangement is worth it depends on your own level of expertise and, of course, how much you value having someone else manage your properties for you.
With Roofstock, for example, the cap rate is 5-8% and the gross return is 11-12%. There will certainly be years when these properties return less than the stock market (but not every year).
Still, each property has an estimated dollar figure for cash flow to give you a real idea of how much money you’ll have coming in if you own a property.
The best way to determine whether this form of investment is worth it for you is to take a look at some of the real numbers and decide if the cash flow coming in seems worth the investment.
Pros and Cons of the Investment Property Marketplace
Of course, investment property marketplaces have their own set of pros and cons.
- Many parts of the process that would normally be separate can be done all in one place
- You’ll be paired with a local property manager – no need to live near the property
- Plenty of stats on each property – including estimated cash flow
- Closing is quick and easy – can be done in as little as two weeks
- Lower profit margin than managing your own properties
- Purchasing a property sight unseen could cause some unease
Investment Property Marketplaces: Conclusion
Investment property marketplaces are similar to investing in a REIT or in real estate crowdfunding; the key difference is that you own your own properties when investing this way.
Real estate investing provides distinct advantages, including cash flow, tax advantages, and the ability to diversify your investment portfolio.
And when you invest through a marketplace, the process is made much simpler. You won’t have to find your own property manager or lender – all of that is done in one place.
Sure, this kind of investing has its downsides, including potentially lower gross returns. However, it’s a great way for inexperienced real estate investors to get started since it requires less knowledge of the industry and general know-how.
If you’re looking to get started with real estate investing, using a real estate marketplace is the perfect way to dip your toes in.