Real Estate Investing provides investors with the opportunity to acquire an asset that is physical and can be touched. It also offers a steady stream of income based on rental fees.
Real estate investments offer one unique advantage not available to stock market investors: leverage. This means that an investor can purchase more property than their initial investment.
Residential real estate includes single-family homes, townhouses, and apartment buildings. Investors may use these properties to generate rental income by leasing them to tenants, or they may sell them for a profit in the future.
Residential properties can be more difficult to manage than commercial ones. Dealing with tenant issues, including maintenance requests and evictions, can be challenging for novice investors. In addition, managing a large portfolio of properties can require more time and resources than many investors are willing to dedicate to the role.
Real estate investment can be a great way to diversify your portfolio, but it’s important to understand the market before you start investing. Analyzing data about home prices, mortgage rates, and vacancy rates can help you make informed decisions about where to invest your money. You can also look at other ways to invest in real estate, such as REITs or online real estate platforms. These investments are less hands-on than direct real estate investing but can still yield attractive returns.
Unlike residential properties, commercial property refers to any property that is used for business purposes. This can include retail shops, office buildings, and even large apartment complexes.
Some investors opt to invest in commercial properties for their income potential, as these assets tend to offer a higher return on investment than residential real estate. Moreover, owning commercial property can lead to tax benefits and capital appreciation.
Investors can also purchase and hold commercial properties for personal use, which is known as owner-occupied property (OPP). This strategy offers an excellent way to build equity and start a real estate portfolio without having to wait for the market to turn.
OPP is typically a good starting point for new real estate investors because it helps them learn about the real estate business while developing their investing skills. Additionally, it allows investors to become familiar with zoning laws and other factors that are important for determining what kind of property they want to buy.
Real Estate Investment Trusts (REITs)
Purchasing REIT shares directly through the public markets is a popular and easy way to get exposure to real estate investments. These REITs are registered with the SEC and trade on public stock exchanges, making them highly liquid, meaning they can be bought or sold easily with a brokerage account.
REITs typically own a portfolio of properties, providing inherent diversification and reducing the risk associated with any one asset. However, this also results in lower growth potential than direct ownership of property.
REITs that aren’t listed on exchanges (public non-listed REITs and private REITs) are available through financial advisors or online investment portals, but they tend to have higher minimum investment requirements and have more liquidity risks than REITs that are listed. Additionally, private REITs forgo some consumer protections and avenues of redress.
Purchasing or selling a mortgage is a way to enter the real estate investing game without owning physical property. However, mortgages are typically a long-term investment and borrowers can expect to pay a higher interest rate than other investors. While rising rates may be softening the real estate market, they could also prompt more investors to flock back to it in droves, especially if they know rates are likely to fall again in the future. Being a landlord is another option but requires a significant time commitment. House-flipping can be lucrative, but it requires a keen eye for what can be fixed and an accurate estimate of what a property can later be sold for. The last two options, REITs and online real estate platforms, provide more passive opportunities, but still have risks attached.