Updated: Jun 14, 2020
The concept of a “side hustle” is steadily gaining prominence as more and more people search for different ways to supplement their income.
Whether it’s driving for Uber or Lyft, starting an Etsy shop for creative goods, or simply picking up a second job on the weekends, a growing number of Americans -- nearly 4 in 10 (37 percent), according to a 2018 survey -- are starting side hustles to bring in more money.
One great method of generating additional income is through real estate. In fact, since 2000, returns on real estate investments have outperformed those of the stock market approximately 2-to-1.
Real estate returns can often reach or exceed 9-10% -- a big step up from the typical 4-8% returns from the S&P 500 Index!
So why aren’t more people talking about real estate investing? One reason is that it is perceived as too costly and too difficult, while another is because people simply aren’t aware of all of their options. While investing in real estate has traditionally been viewed as the domain of the uber-rich, it is actually a great method to explore for anyone looking for a reliable way to supplement their earnings and diversify their investments.
Here are five different ways to get started investing in real estate, ranging from low-maintenance to high.
Buy Into a REIT
For those interested in a truly hands-off approach, buying into a REIT is a great way to invest in real estate without actually having to own any properties. A REIT, or real estate investment trust, is a company that owns, operates, or finances commercial or other income-producing real estate. Often compared to mutual funds, REITs allow anyone to invest in predetermined portfolios of real estate assets via the purchase of company stock.
By collecting rent on the properties it owns, a REIT generates income which is then paid out to shareholders. In order to maintain REIT status, companies must pay out at least 90 percent of this income to their investors -- which means investors often earn high dividends. REITs are therefore a great income-generating option for those who are comfortable investing long-term.
Because investing in REITs is passive -- you are not responsible for finding, purchasing, or managing any properties -- it’s one of the most popular ways for investors to dip their toes into the real estate world. Plus, investors are hard-pressed to pass up the over 10% annual returns that REITs have yielded since 2000.
Popular public REITs include the Vanguard Real Estate ETF, the Schwab US REIT ETF, and the SPDR Dow Jones REIT ETF. Investors also have the option to invest with actively-managed private REITs such as those offered by companies like T. Rowe Price and Fidelity.
Participate in Real Estate Crowdfunding
Investing in crowdfunded real estate is another great, low-maintenance way to snag a piece of the real estate pie. Like its name suggests, real estate crowdfunding operates by connecting real estate developers to investors who want to help finance projects. Much like on well-known platforms GoFundMe or Indiegogo, these projects -- which may range from residential single-family homes to commercial properties to multi-family units -- are funded via a pool of investors who all chip in. Once the properties sell or are refinanced, everyone who invested receives an interest payout.
As with REITs, the allure of real estate crowdfunding is that it is passive -- you are not required to hunt for the property, fix it up, or manage it or its tenants. Your risk and workload are minimized, yet the potential for profit still exists.
In the past, this method was limited to accredited investors, or investors that have a net worth of at least $1 million or that have earned at least $200,000 for at least two years. However, with the passage of the JOBS Act in 2012, the real estate crowdfunding sphere is now accessible to non-accredited investors as well. As a result, a variety of crowdfunded real estate platforms have cropped up to service this previously excluded class of investors, with much lower minimum costs to begin. Platforms such as Fundrise and PeerStreet require just a few hundred dollars to get started, while newer investment platform GROUNDFLOOR allows everyday investors to begin creating their own customized real estate portfolios with just $10.
Hack Your House
If you happen to own a residence with multiple empty bedrooms, consider renting them out (either to long-term renters or to shorter-term guests) to generate extra income. This method -- known as “house hacking” -- is a great way to gradually introduce yourself to property management. Plus, buying a home with the intention of renting out the extra bedrooms allows you to still qualify for a residential loan.
While not as hands-off as the previous two methods, house hacking is nevertheless a great way to dip your toes into generating income through your existing real estate assets. Whether you choose to do that by accepting longer-term renters or by putting your spare room(s) on sites such as Airbnb, you’ll have to assume responsibility for the care and upkeep of your property. But, having a steady stream of income from your tenants is often worth the trouble. In fact, a recent SmartAsset study found that listing a spare room on Airbnb would cover between 70% and 100% of the host’s two-bedroom apartment, depending on the city and on how many days the room was occupied. Cue the money rolling in!
Become a Landlord
Perhaps the most well-known way to make money via real estate, managing properties as a landlord is also one of the more difficult methods on this list, as it requires higher overhead costs to purchase rental properties and much more active involvement to find and manage tenants. However, becoming a landlord is attractive to many because of the rising number of renters -- in fact, between 2005 and 2015, the number of renter households increased by nearly 9 million -- and because of the steady stream of income it creates each month.
While there is no denying that being a landlord involves a large amount of responsibility, there are ways to ease the burden if you so choose. For example, if fielding calls about leaky faucets or pest issues isn’t for you, you can always hire a property manager. Additionally, if you have a trusted friend or family member, you could consider managing rental properties together to divvy up the responsibilities.
Fix and Flip Properties Yourself
If you’re not afraid of hard work, you can opt to go full-on DIY by buying a cheap, run-down property, giving it a little TLC, and reselling it at a profit. This method, popularly known as house flipping, has been popularized through HGTV programs such as Property Brothers and Fixer Upper, and is by and large perceived as one of the best ways to make a profit in real estate.
However, investing in real estate like this is not for the faint of heart. Not only is it time-, money-, and labor-intensive, flipping also carries a bigger element of risk, as so much of the math behind flipping requires a very accurate estimate of how much repairs will cost. As such, you’ll need a competent and dependable team to help you bring your vision to reality.
There are many financing options available for those who are set on flipping homes, from traditional bank loans, to alternative hard-money lenders like LendingHome or GROUNDFLOOR, to private lenders. You’ll need to do some research to find the terms and rates that work best for you and your project.
Investing in real estate can not only add needed diversification to a portfolio but also can provide a great source of additional income. Whether you choose to flip houses yourself or simply to invest in a crowdfunded real estate project through a platform like GROUNDFLOOR, you’ll be setting yourself up with a great financial foundation for your future.
About GROUNDFLOOR Founded in 2013 by Brian Dally and Nick Bhargava, GROUNDFLOOR opens private capital markets to all. GROUNDFLOOR was the first company qualified by the U.S. Securities & Exchange Commission to offer direct real estate debt investments via Regulation A for non-accredited and accredited investors alike. Today, it remains the only product offering a customizable real estate debt portfolio for short-term, high-yield returns. For real estate entrepreneurs, GROUNDFLOOR offers borrower friendly loan terms like a deferred payment option to give developers more control over their cash flow. The company is headquartered in Atlanta and has raised $13.8M in equity capital. While anyone in the country can invest in GROUNDFLOOR with as little as $10, the company focuses its lending in 30 states.