July 27, 2021

What are the Different Ways to Invest in Real Estate

If you’re an investor looking to make money, you probably already know that investing in real estate is considered one of the most lucrative ways to do it. Many of the richest people in the world have gotten there start in real estate, and it can be a rewarding and interesting way to invest as well.

But it’s not without risk. You need to have a solid, working knowledge of real estate finance and investment to succeed, and you need to know the different ways to invest.

This article will cover four of the basic ones, starting with becoming a landlord. In this scenario, investors buy a house or a building with the idea of renting it out and using the ongoing rent as income.

Becoming a landlord can be lucrative. The income is usually steady and significant, and many of the expenses incurred are can be deducted from taxes. The risks are obvious, though. Rental properties can be difficult and expensive to maintain, and vacant months must be covered if there are gaps between tenants.

Real Estate Investment Groups (REITs) are another way to go. These groups invest in rental properties, so the risk is spread across the group.

But there is a vacancy risk in this method as well, and REITs are notorious for attracting corrupt management teams that steal from investors.

The next option is house flipping. This is one of the most popular methods, largely because of the potential to make a lot of money in a short period of time. The idea of buying property, renovating it and selling for a profit has been glamorized in the last decade or two, but it’s also fraught with risk.

Markets can turn on a dime, which means buyers can get stuck with a property that suddenly turns hard to sell and expensive to keep. And renovation costs can rise in ways that are unpredictable, which lowers the potential income significantly.

Real Estate Investment Groups (REITs) are the last form of investment covered here. These trusts are basically collections of stocks invested mostly in commercial real estate, so the income is based on dividends paid out from long-term leases.

The risks to this form of real estate investment are a little different. Buying stocks comes with intrinsic risk, regardless of whether they produce stable, steady income. And the income produced by REITs tends to be lower than that of other real estate investment methods, so keep that in mind if you decide to go this route.