Invest in Real Estate – 4 Investment Options
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 tenants. Plus, you can buy a property by paying only 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.
advantage
• 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 can reduce revenue
• Tenants can damage the property
flipping the house
You can buy cheap properties that need a little improvement, renovate them cheaply, and then resell them at a profit. However, moving house carries 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 are likely to make because you will be paying a mortgage with no income.
advantage
• Tie your capital only in the short term
• Possible quick returns
cons
• A hot market can cool down unexpectedly
• Requires in-depth knowledge of the industry
Real Estate Investment Trusts (REITs)
REITs are traded on major exchanges, similar to stocks. A REIT arises when a trust/corporation uses investors’ money to purchase and manage income-producing properties. 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 properties, such as office blocks and shopping malls, that may not be purchased outright.
advantage
• Highly liquid because they can be traded
• They are, in essence, shares that pay dividends
• Participations are usually long-term leases that produce cash
cons
• Does not offer the leverage typically available in traditional rental property investing
online platforms
These online platforms link investors with developers who need capital for their real estate projects, either through equity or debt.
advantage
• You have the option to invest in a single project or a wide range of projects
• Geographical diversification
cons
• Typically illiquid and speculative
• Management expenses
conclusion
The four real estate investment options available to investors include rental properties, home swaps, REITS, and online platforms. Ultimately, the ideal real estate investment opportunities are those that align with your investment goals.