Getting Started with Online Real Estate Investing: A Beginner’s Guide
It’s no secret that investors have always considered real estate a wise way to build wealth. For the average individual, the challenge has traditionally been the requirement for significant capital to enter this market. Add in complex transactions with substantial risk, and real estate investing was too complicated and out of reach for the average person.
Times have changed, and now aspiring investors can dip their toes into the real estate market from the comfort of their homes through online real estate investing! This beginner’s guide will walk you through the fundamentals, benefits, and strategies for online real estate investing.
Whether you’re a novice or a seasoned investor, online real estate debt investing is worth exploring. Let’s jump in!
History of Real Estate Investing
In the past, real estate investment was regarded as a reliable and low-risk strategy for wealth accumulation. As individuals sought homes and businesses required offices and storefronts, the demand persisted, and real estate not only generated income but also appreciated in value. This trend continues today.
In a comprehensive research study titled “The Rate of Return on Everything 1870-2015,” residential real estate emerged as the top-performing investment with an average return rate slightly exceeding 7%. However, it's crucial to acknowledge that this paper doesn't assess real estate investments post-2015, and significant developments have occurred in the past nine years. This prompts the question: does real estate investing remain a prudent financial decision?
In short, the answer is yes. The National Council of Real Estate Fiduciaries (NCREIF) has a wealth of U.S. commercial real estate data from 1977. From January 1978 to December 2022, the NCREIF’s Property Index shows an average annual return of just over 9%.
The data for residential real estate is more challenging to pin down, but we can consider a few variables. Since 1965, home prices have increased 7.6 times faster than income, meaning residential properties continued to perform well. The average rate of return during the past two decades has hovered around 9.5%.
In the past four and a half decades, investors in the stock market have seen average returns of 11.53%. That seems impressive until you look at the market’s volatility, reflected in the graph below. It’s a bit of a roller coaster, isn’t it?
Now, compare the stock market graph to this one, showing the stability in home prices during the same period:
As you can see, while the price of real estate experienced small dips, there was steady growth. On the other hand, the stock market experienced frequent and sharp declines.
Another type of low-risk investment is bonds. They are generally long-term commitments, like real estate, but they only offer low returns. Real estate makes more sense than bonds if you are keen on long-term, low-risk investments that provide good returns.
Traditional vs. Modern Real Estate Investment Strategies
There are numerous avenues to investing in real estate for beginners and veterans alike. Some strategies are considered traditional, while others have recently emerged, resulting in a more modern investment method. Before getting into how to get started in real estate investing, let’s discuss the different types of strategies.
Various pathways exist for beginners and seasoned investors to venture into real estate. While some strategies are deemed traditional, others have surfaced more recently, introducing a more contemporary approach to investment. Before delving into the specifics of initiating a journey in real estate investing, let's explore the diverse strategies available.
Traditional Real Estate Investment Strategies:
- Investors are drawn to the allure of fixed-rate mortgages, property appreciation, and tax advantages, especially when eyeing rental income as a lucrative avenue for property acquisition. Single-family homes, in particular, captivate investors aiming to diversify their portfolios. The ease of leveraging property with banks and rental income assisting in mortgage payments further enhances the appeal of real estate investments.
- Investors who cannot buy additional real estate separate from their primary residence generate income by renting out spaces within their homes. The passive income from room rentals helps investors pay their mortgage, invest, or buy another property.
- Flipping involves purchasing properties, renovating them, and then selling them quickly. A successful flip is measured by the profit from the sale and how quickly that sale happens after the renovations. Successful flippers understand how to source budget-friendly materials, know contractors who produce good work for a reasonable price, and network with experienced real estate agents skilled in selling.
Real Estate Investment Trusts (REITS)
- REITs are corporations that behave like mutual funds. Investors can invest in property without physically owning it by buying shares and receiving dividends. The benefit of REITs is that individuals can invest in large, income-producing real estate projects that are typically out of reach for the average investor.
Real Estate Investment Groups (REIGs)
- REIGs are comprised of savvy private investors who pool their finances to invest in various real estate investments. Where REITs are strictly regulated by the government, REIGs are flexible in how they are structured and are governed by private agreements.
BRRR - Buy, Rehab, Rent, Refinance, Repeat
- BRRR's a strategy for experienced investors who know how to find below-market-value properties, rehab them quickly, rent them at a rate that covers the mortgage payments, do a cash-out refinance, and then use profits to repeat the process all over again.
Modern (Online) Real Estate Investing Methods:
- Crowdfunding is a method for aggregating funds from groups of investors to invest in real estate projects collectively. Numerous crowdfunding platforms exist online, each with its own rules regarding eligible investors and types of investments offered. Specific platforms are designed to be more inclusive, providing investment opportunities to non-accredited investors, while others exclusively cater to accredited investors.
- We discussed the significance of traditional Real Estate Investment Trusts (REITs) earlier, and it's worth noting that they are accessible online. Publicly-traded REITs welcome participation from any investor, whereas private REITs are exclusive to accredited investors. The passive income generated from REITs contributes to wealth building without the direct ownership responsibilities associated with real estate.
Real Estate Exchange-Traded Funds (ETFs)
- ETFs are mutual funds - a basket of investments - that are traded on an exchange. ETFs offer diversification that is important to any portfolio. A single ETF can include different types of properties.
- A note is a type of financial security that usually has a longer term than a bill but a shorter term than a bond. They are also known as promissory notes and are issued by those needing short-term financing for working capital, purchases, or to bridge cash flow gaps.
Short Notes are an excellent low-risk method that offers short terms and high liquidity if you're searching for how to invest passively in real estate. Connect Invest’s Short Notes are collateral-back loans that fund several vetted residential and commercial real estate projects.
The duration of Connect Invest’s Short Notes ranges from 6 to 24 months and has a defined exit date. Opening an account takes just a few minutes, minimum investments start at $500, and there are no fees.
The internet and its information highway have made the modern era of real estate investments accessible and exciting. Real estate is less volatile than other investments, and group investing has created investment opportunities for the ordinary, everyday investor. Crowdfunding and group investments offer diversification, low volatility, long-term yields, and passive income, all without the hassles of direct property ownership.
Why Invest in Real Estate Online?
Before deciding to invest in real estate online through an online platform or fund, it’s prudent to consider the pros and cons. Let’s consider a few of them.
Benefits of Investing on Real Estate Digital Platforms:
Easy diversification of holdings
- Online real estate investments tend to be more liquid than physical ownership, making investing in more than one property and type easier.
Varied asset selection
- The Internet provides access to a wide selection of assets that weren’t easily accessible before the Internet.
- Online transactions are fast and budget-friendly. Investing online is more efficient than buying a property.
No landlord duties
- When you invest in real estate online, you enjoy the benefits of having it as an asset class in your portfolio without the direct responsibilities of being a landlord.
A real estate investment business such as Connect Invest helps investors earn passive income without being saddled by the day-to-day operations of property management. Connect Invest’s short notes fund a diversified private residential and commercial real estate project portfolio with zero overhead, easy liquidity, and no account fees.
Investors earn high-yielding monthly fixed income, with minimum investment as low as $500 and commitments as short as six months.
Investors with Connect Invest set up their account in a few minutes and link a bank account to transfer funds to their digital wallet to begin investing. Accounts are managed through each investor’s account portal - add funds, make investments, and collect payments. The passive, monthly interest payments are paid to each investor’s digital wallet.
Things to Be Aware of When Investing in Real Estate Online:
As with any investing, online investments do come with cons. These include:
The ability to choose specific investments is limited
- Fund managers, not individual investors, evaluate and select properties and companies.
No physical ownership
- If you want to own property physically, online real estate investing may not be the right fit for you because custody of a property is assigned to a management team.
Potentially higher fees
- Real estate platforms can have fees that vary widely. The great news is that Connect Invest has no fees, hidden or otherwise!
How to Get Started Investing in Real Estate Online
Connect Invest's model is easy to navigate whether you’re new to real estate debt investing or an experienced investor. Other online real estate investment platforms exist, such as RealtyMogul, Fundrise, and Crowdstreet, but let’s focus on Connect Invest.
Your first step is to open your Connect Invest account. It takes just a few minutes, and the only requirements are that you are 18 years old, have a U.S. social security number, and be a U.S. citizen or legal permanent resident.
After you’ve opened your account and verified your email and identity, you’ll need to link a bank account to your Connect Invest Wallet to transfer funds. Once completed, you can select from a six-, 12-, or 24-month investment term. You’ll begin earning passive income through fixed-rate monthly payments.
Connect Invest eliminates the need for navigating the complexities of investing in a startup real estate company. Start your online real estate investment journey and earn passive income soon after establishing a Connect Invest account.
Our brief and user-friendly notes make investing accessible to the average individual. Moreover, our skilled and professional team stands ready to deliver exceptional customer service, addressing any questions you may have.