Investing in real estate is satisfying and lucrative, 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 the tenants. Plus, you can buy a property by paying just a fraction of the full price, then paying off the balance and interest over time. Here are four real estate investment options.
properties to rent
Investing in residential rental properties can be great, especially for people with renovation and DIY skills, and who have the fortitude to deal with tenants.
advantages
• Provides regular income
• Properties can appreciate
• You can optimize capital through leverage
• Many of the expenses are tax deductible
Cons
• Managing tenants can be tedious
• Vacancies may reduce income
• Tenants can damage the property
flipping the house
You can buy cheap properties that need a bit of an upgrade, renovate them cheaply, and then resell them at a profit. However, moving house comes with some risks. First, your estimate of repair costs must be accurate, which is not an easy thing to do. Second, the longer the property is in your hands, the less money you’ll likely make because you’ll be paying off a mortgage without generating income.
advantages
• Ties up your capital only in the short term
• Possible quick returns
Cons
• A hot market can cool off unexpectedly.
• Requires in-depth knowledge of the industry
Real Estate Investment Trusts (REITs)
REITs are traded on all major exchanges, similar to stocks. A REIT arises when a trust/corporation uses investor money to purchase and manage income-producing property. To maintain REIT status, 90 percent of the trust/corporation’s taxable income must be paid as dividends. REITs can allow you to invest in non-residential property such as office blocks and shopping malls that may not be able to be purchased outright.
advantages
• Highly liquid because they can be traded
• They are, in essence, stocks that pay dividends
• Participations are usually long-term leases that produce cash
Cons
• Does not offer the leverage often available in traditional rental property investing
online platforms
These online platforms match investors with developers who need capital for their real estate projects, either through equity or debt.
advantages
• You have the option of investing in a single project or in a wide range of projects
• Geographic diversification
Cons
• Typically illiquid and speculative
• Management fees
Conclusion
The four real estate investment options available to investors include rental properties, home exchange, REITS, and online platforms. Ultimately, the ideal real estate investment opportunities are those that align with your investment goals.
