Real estate investing provides numerous advantages, from passive income from renters and equity accumulation, to protecting against inflation as rising property values drive up property values. But as with all investments, investing in real estate comes with its own set of risks and rewards.
Real estate investing comes in many forms, from buying single-family homes and renting them out, becoming landlords, lending money to house flippers or lending money directly. Each option may present some level of risk or illiquidity – therefore, before making a commitment, make sure any prospective investments fit within your goals and risk tolerance.
Crowdfunding platforms offer an easy and cost-effective way to get involved in real estate investment, by connecting developers and investors on larger commercial deals. From condo conversions to building entire communities, these opportunities should be carefully evaluated; investors should expect lower returns than with traditional investing methods.
An increasingly popular strategy is purchasing rental property and managing it yourself, which can increase monthly cash flow while building equity. Unfortunately, managing rental property can also be time consuming and expensive if tenants do not pay rent timely or treat your property respectfully – otherwise eviction costs and maintenance expenses could diminish your return on investment.
REITs offer one of the most liquid forms of real estate investment: shares in publicly traded real estate companies that allow you to buy apartments and other types of properties without visiting or managing them directly yourself. They’re easier to sell if needed and provide less diversification than direct investments into residential and commercial real estate properties.
Value-add strategies allow investors to purchase “Class B” or “Class C” properties that require some work in order to increase their profitability and value, such as making changes such as updating appearance or adapting them for new purposes. These investments typically remain on your portfolio between 3-7 years before producing high returns.
When investing in real estate, the first step should be learning as much about local market trends and investment tactics as possible. Reading books, attending seminars and connecting with other investors in your region are all excellent sources of insight into this industry. Once armed with basic information on investing, consider starting small before expanding as your interest and time allows.