Investing in real estate may be lucrative since it offers the possibility of both long-term appreciation and passive income. It can also be a wise strategy to broaden the diversification of your portfolio beyond the conventional holdings of mutual funds, equities, and bonds.
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Even while purchasing a property might be your first venture into real estate investing, there are many other ways to get involved in the market, including house flipping, rental properties, real estate investment trusts (REITs), and online real estate platforms. These six real estate investments might help you diversify your holdings.
Purchase a rental home
Purchasing and renting out a property to either long-term or short-term tenants is a traditional real estate investment strategy. One of the biggest benefits of being a landlord is that you may write off a lot of the expenses related to the property, such as upkeep, depreciation, insurance premiums, utilities, maintenance, and administrative expenditures.
Of course, the drawbacks of owning rental property include the potential for lengthy payback periods, expensive startup expenses, and troublesome tenants. With the correct property, you may still benefit from good cash flow and long-term appreciation. Additionally, if you sell the house and purchase a “like-kind” property, you can postpone paying capital gains taxes by using a 1031 exchange.
Lease a space
One great approach to experiment with real estate investing is through house hacking. The plan is to rent out a portion of your house, such an auxiliary dwelling unit (ADU), the basement, the attic, or a single room. Depending on how well the facility is maintained, there may not be much start-up expenses. Moreover, the additional revenue might assist in covering your monthly housing costs while you accumulate equity and pay down your mortgage.
Investing in a multifamily property and renting out the remaining units while residing in one apartment is a more sophisticated housing hack. If you’re renting out a room or half of a duplex, you may use an internet platform like Airbnb to identify long-term renters or, if allowed, offer the area to short-term rentals.
Make use of a real estate investment website online.
In the realm of real estate investment, online platforms for real estate investing—also referred to as “crowdfunding websites”—are relatively new. These platforms connect prospective investors and developers so that they may combine their funds to finance real estate projects with as little as $500. Investors get debt or stock in a project in return, along with dividends on a monthly or quarterly basis if everything proceeds as planned. These investments entail greater risk and are typically less liquid than publicly traded REITs, so you might not be able to sell your shares fast, even though they have larger potential profits.
While some platforms, like RealtyMogul, are exclusive to accredited investors, others provide possibilities for both accredited and non-accredited investors. Depending on the platform, investors usually pay an annual management fee that ranges from around 0.25% to 2.50%. Additional costs could also be included.
Turn a house around
Purchasing a cheap home, making repairs, and then reselling it for a profit is known as house flipping. Purchasing the correct property might help you make money more quickly than managing one, but it’s not as simple as it seems on television. You must be able to identify a property’s potential and have a plan for making it a reality in order to be a successful flipper. In order to make a profit, you also need to have enough money, a trustworthy group of contractors, and precise cost-estimating abilities.
Effective project management abilities are also advantageous. You will save money on holding expenses, such as mortgage payments, utilities, property taxes, homeowners’ association (HOA) dues, and insurance, the faster you can sell the property.
Purchase a REIT.
If you want exposure to real estate without the hassles and responsibilities of managing rents, a REIT might be a great choice. An organization that owns and manages assets that generate revenue, such as hotels, retail establishments, offices, warehouses, medical facilities, and residential complexes, is known as a REIT. A REIT holds a portfolio of assets and combines the capital of several investors, much like mutual funds. A proportionate amount of the income is earned by investors who purchase REIT shares.
The majority of REITs are easily and highly liquidly tradable on stock markets, which is one of their primary selling points. Rent received from its real estate holdings and space leased are how a REIT generates revenue. Dividends are how investors make money in return. REITs are required by law to distribute shareholder dividends equal to at least 90% of their taxable revenue annually.
Make a real estate investment group (REIG) investment.
A group of private investors that pool their resources and knowledge to purchase properties that generate revenue is known as a real estate investment group, or REIG. If you want to own rental properties but don’t want to be the only one in charge of managing them, they can be a smart choice for you. The buying power (and collective experience) of the REIGs is utilized to invest in a variety of real estate, such as commercial buildings, apartment complexes, and condos.
Positively, you may participate in deals that broaden your horizons and learn from other, more seasoned real estate investors by joining REIGs. On the other hand, if you associate with an inept or inexperienced organization, the investment may fail and membership costs may reduce your earnings. However, if you investigate the organization and find someone who shares your objectives and risk tolerance, joining a REIG may be a rewarding endeavor.
Time Stamp: There is a lot of possibilities when investing in real estate.
Numerous advantages may come from real estate investments, such as tax advantages, portfolio diversification, steady income flow, long-term appreciation, and the capacity to leverage your money. Nevertheless, there are disadvantages as well, such as a lack of cash, expensive startup expenses, and the fact that real estate investment may be a laborious process.
However, it’s important to keep in mind that there are a variety of real estate investment strategies, and some may be more appropriate than others. For instance, if you’re searching for an investment that provides both tax savings and hands-on management, rental property can be a smart choice. If you want a more liquid investment and a hands-off attitude, you may choose a REIT. You may invest in both rental properties and REITs if you want the best of both worlds. You are not limited to choose a single kind of investment, after all.
In the end, real estate investment is determined by your objectives, level of risk tolerance, and time horizon. You may choose an investment that suits you by doing your homework, consulting with a financial counselor, and investigating your possibilities.