Real estate investing is satisfying and profitable, when done right. It can help you diversify your investment portfolio as well as generate additional income. Many real estate investments do not require you to deal directly with tenants. Also, you can buy a property by paying only a fraction of the total price and then settling the balance and interest over time. Here are four real estate investment options.
Real estate rental
Investing in residential rental properties can be great, especially for individuals who have renovation and DIY skills, and have the nerve to deal with their tenants.
• Providing a regular income
• Characteristics can be estimated
• You can improve your capital through leverage
• Many expenses are tax deductible
• Managing tenants can be tedious
• Vacancies can reduce income
• Tenants can damage the property
You can buy low-priced properties that need a bit of an upgrade, renovate them cheaply, and then resell them at a profit. However, house flipping comes with some risks. First, your estimate of repair costs needs to be accurate, which isn’t easy. Secondly, the longer you have the property in your hands, the less money you are likely to earn because you will be paying a mortgage without generating income.
• Connects your capital only for the short term
• Potential quick returns
• A hot market may cool unexpectedly
• Requires deep knowledge of the industry
Real Estate Investment Trusts (REITs)
REITs are traded on major exchanges, similar to stocks. A REIT comes into existence when a trust/institution company uses investors’ funds to purchase and manage income-producing real estate. To maintain REIT status, 90 percent of the taxable income must be paid to the fund/company as dividends. REITs can enable you to invest in non-residential real estate, such as malls and shopping centers that you may not be able to purchase outright.
• High liquidity because it can be traded
• In essence, they are dividend-paying shares
• Holdings are generally long-term cash-producing leases
• It does not offer the leverage that is usually available in traditional rental properties for investment
These online platforms connect investors with developers who need capital for their real estate projects, either through equity or debt.
• You have the option to invest in a single project or a variety of projects
• Typically illiquid and speculative
• Administrative fees
The four real estate investment options available to investors include rental properties, house flipping, real estate investment trusts, and online platforms. Ultimately, the ideal real estate investment opportunities are the ones that align with your investment goals.