Investing in real estate can be a very profitable opportunity. If you do it right, that is, and one of the most important elements of this is choosing the right kinds of real estate to invest in. Indeed, most experts suggest that diversifying your investments over several different kinds of real estate is the best way to protect them against a market crash. The good news is that you will find some of the most popular real estate investing options evaluated below.
Residential Properties To Lease
The first type of real estate investment option to consider is buying a residential property to lease out. This can be a particularly good choice, as it can produce passive income that can go towards paying off the mortgage. What this means is that the value of your investment will increase over time. Although you will need to sell the property eventually to release that value.
Another great thing about purchasing a residential property to rent out is that it affords you tax benefits. Among others, this includes allowing you to take the amount of interest paid on the loan for your home off your taxes. Lastly, residential properties to lease can be a good choice for investment because there tends to be a consistent demand for them, meaning you won’t find it hard to find paying tenants.
However, it’s worth noting that the life of a landlord is not stress-free. Indeed, landlords can run into a lot of trouble when they encounter difficult tenants who damage their property or refuse to move out. Also, landlords will have to deal with the issue of transition between the time an old tenant moves out and a new one moves in, where they will not be bringing in any income.
Residential Properties To Sell / Flip
Another option when it comes to residential properties is buying them to sell on. The most common iteration of this option is what is known as flipping. Flipping a property is all about buying it cheaply, doing any work that needs doing yourself and then selling it for a profit. One of the most important elements of successfully flipping a property is ensuring that any renovations happen fast, and that you sell for significantly more than the cost of the original property and the work that has been done.
One of the biggest issues with property flipping is that you’ll need a significant amount of capital to begin with. You also may end up making a loss if the renovation work is more extensive than first thought, or if the market crashes while you are still in ownership.
Vacation properties
A type of residential property, vacation rentals are generally set up for short-term rentals, catering for people on vacation or business trips. One of the best things about investing in a bastion rental is that if you choose the right location, you can charge a large amount for even a small amount of time, such as a week. Vacation rentals also offer tax deductions, and are pretty easy to market, especially when there are so many platforms like Airbnb out there that are devoted to this task.
The downsides of investing in a vacation rental are that you can really charge peak prices all year round. Additionally, vacation properties will need to be cleaned and inspected after every stay, which may mean the additional cost of employing a management company.
Commercial & Industrial Property
Aside from residential properties, others can be a good choice for investment. These include both commercial and industrial, which only differ slightly from one another. Commercial tends to be retail and office spaces, while industrial leans more towards factories, manufacturing facilities and warehouses.
Both commercial and industrial property options offer great long-term income opportunities and the chance for your initial investment to increase over time. In particular, commercial property can command a high return. However, commercial properties tend to come with higher management maintenance fees, while industrial properties often require a higher initial investment.
Real Estate Investment Trusts (REITs)
Differing from the other options mentioned here, REITs are a method of investing in real estate without having to buy a property outright. Instead, REITs allow you to buy shares in a company that owns real estate. Then, when that company is profitable, it pays its shareholders dividends.
Some of the major benefits of choosing REITs are that there is a much lower barrier to entry when it comes to cost. After all, a share in a real estate company will nearly always cost less than an entire property. REITs also offer regular passive payments when successful, and tend to be well diversified to minimise risk.
However, it is worth noting that REITs can be vulnerable to market fluctuations, incur management fees and will differ in quality depending on the trust. That is why, just like all investments, you must do your due diligence. To do this, you can use publications that cover real estate investment trust news online. The reason being that this type of publication can provide you with non-biased information on this type of investment so helping you stay educated on your REIT options.
Real Estate Investment Groups (REIGs)
Another investment option that is similar to but not quite the same as REITs is REIGs, or real estate investment groups. Instead of buying shares in a company that owns real estate, like you do in REITs, with REIGs, you form a group with other investors and use your pooled money to buy property. Unlike REITs, REIGs are private entities, and everyone within them owns part of the properties they invest in.
The main benefits of choosing to invest in property with an REIG are that you can purchase properties and benefit from selling or leasing them out, even if you don’t have the full purchase cost yourself. Although profit sharing is not always easy to work out, you will need a way to properly settle any disputes within the group, as these can impact both the dynamic and the profits.
