6 Great Ways to Invest in Real Estate

6 Types of Real Estate InvestmentsAre you ready to start investing in real estate? If so, there are several types of investments you'll want to learn about before you get started. Each type of investment comes with its own set of risks and rewards, so it's essential to do your research before making any decisions. Evaluate your long-term goals to decide what might be a good fit for you. With careful planning and execution, investing in real estate can be a great way to grow your wealth over time. Keep reading to become an expert on types of real estate investments.

For informational purposes only. Always consult with an attorney, tax, or financial advisor before proceeding with any real estate transaction.

Invest In REITs

Real estate investment trusts (REITs) are an excellent portfolio diversifier that allows new real estate investors to own a share of a more significant development. REITs are traded on stock exchanges, and they offer investors a way to gain exposure to the real estate market without having to actually purchase an investment property.

In order to be a legitimate REIT, the entity must payout at least 90% of its taxable profits in the form of dividends to shareholders. The advantage for the REIT corporation itself is that this helps it avoid corporate tax and allows the company to keep all of the remaining earnings.

Invest in Your Primary Residence

Buying a home for regular personal use is the most common type of real estate investment. When you buy a house or condo to live in, you get the immediate value of having a place to live and the long-term value of property appreciation. Owners can also increase property values by installing high-ROI smart tech home upgrades. Instead of spending money you won't get back on rent, monthly mortgage payments on a home are an investment in your own equity. If you sell the property for more than you paid for it, you can ultimately earn a profit. By understanding capital gains taxes, you'll be able to keep the majority of that profit, too.

Invest in Rental Properties

Investing in rental properties is a great way to create passive income. When you rent out a residential property, you collect profitable monthly payments from your tenants. This can be a great way to supplement your income or become financially independent over time.

The money you make from collecting rent on that investment property can fund mortgage payments, property taxes, and repairs without dipping into your personal accounts. Plus, you get to keep anything leftover, and your property value will appreciate the whole time.

If you invest in rental properties, you'll need to decide between a short-term rental or a long-term rental. Each has pros and cons.

Pros of short-term rentals:

  • Higher rent per night
  • More booking capacity
  • Overall higher rental income ceiling

Pros of long-term rentals:

  • More consistent income
  • Less severe maintenance requirements
  • Better tenant relationships

Invest in Flipping Houses

Flipping houses is a real estate investment where you purchase a property, make repairs or renovations, and then sell it for a profit. It's a speculative investment, which means there is always some risk involved. However, if you can correctly estimate the costs of repairs and renovations and time your sale correctly, you can make great returns. There are two types of house-flipping real estate investors.

Fixer-upper investors are usually people with excellent DIY skills. They buy an older, worn-down house for minimal money upfront, implement high-ROI home upgrades, and sell it for a profit.

Buy-and-wait investors try to keep an eye on rising markets in popularity. Their goal is to swoop in before the market hits peak buyer interest, invest in properties, and sell them during a prime sellers' market for more money than they paid.

Invest in Commercial Real Estate

Commercial real estate is a type of property used for businesses rather than residential purposes. This can include office development, warehouses, retail space, or land for future development.

Investing in commercial real estate can be a great way to get significant rental income, multi-year leases, and long-term appreciation. The downside is that it can be more challenging to find a tenant than it is for residential properties. Commercial tenants usually require longer leases, and they're often looking for specific types of space that may not be available in your area.

Still, if you can find an excellent commercial property and fill it with a quality tenant, you can see excellent returns on your investment with commercial real estate.

Invest in Raw Land

Investing in raw land is a high-risk, high-reward proposition. The idea is to purchase undeveloped land and wait for the right time to sell it. Developers are always in need of new land, so if you can purchase property when the market is down, you may be able to sell it at a higher price later, just like the buy-and-wait house flipper does.

Raw land is undeveloped land that has not been used for specific purposes, such as housing or businesses. It can be rural or urban, and it can have various features, such as hills, forests, or rivers. This land can appreciate quickly and is an excellent portfolio diversifier, but it's not as common to receive rent payments for raw land.

Reach Your Goals With Real Estate Investing

So, whether you're a beginner investor or someone looking to expand their investment portfolio, real estate is a viable investment option that will offer growth opportunities. When making your first investment, try starting with REITs—they are low risk and provide immediate diversification in your portfolio.

If you want to invest in property but don't want the hassle of being a landlord, buying a private residence is always a sensible option. And finally, if you have some experience investing, a higher risk tolerance, and are interested in high-earning potentials, commercial real estate and raw land should be on your radar. Choose the type of real estate investment best for your financial goals.

For informational purposes only. Always consult with an attorney, tax, or financial advisor before proceeding with any real estate transaction.

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