Real estate investments offer income, capital appreciation, tax benefits and diversification to your portfolio – however they come with high upfront costs and require more active management than stocks or bonds.
“Location, location” applies to real estate investment as much as to anything else. A property’s neighborhood influences rental income and vacancy rates significantly.
1. Residential Rentals
Residential rentals have long been one of the most profitable forms of real estate investment, producing an income stream and cash flow for their owners.
Owning real estate as an investment can bring numerous tax benefits, including depreciation deductions and property tax reductions in NYC’s Opportunity Zone properties. But before diving in head first into residential rental property investing, it’s essential to understand both time commitment and responsibilities involved.
Property investing requires large sums of money and recurring expenses such as property maintenance. Therefore, it’s wise to consult with an experienced investment advisor prior to making any financial decisions. You could also explore other alternatives like REITs or crowdfunding platforms that offer simpler investment solutions but may not offer as much liquidity than stocks.
2. Large-Scale Residential Rentals
Real estate investments often attract investors for its rental income potential or appreciation over time, and are generally seen as less risky forms of investing than stocks or cryptocurrencies.
Investors who invest in residential rental properties can generate passive income through renting villas, townhouses and single-family homes out on rent. Plus they may take advantage of depreciation tax deductions like mortgage interest and operating expenses to increase their returns.
An easy and risk-free way of investing in residential rental property is via real estate investment trusts (REIT). These firms own and manage large apartment complexes, condos or housing communities in return for providing investors with an equity stake of the returns generated. Accredited investors may also buy shares of portfolios through crowdfunding platforms like Roofstock One.
3. Flipping Houses
Flipping houses is a form of real estate investment in which an investor purchases and renovates an existing home before selling it at a higher resale value. Flipping can generate profits from either increased resale price or value creation due to renovations.
House flipping can be an excellent way to diversify an investment portfolio, but it is crucial that research be conducted prior to making any definitive decisions. For instance, it is vital that the neighborhood in which the house will be situated offers both stable employment rates and low crime rates.
House flippers must consider transaction fees in addition to purchase and renovation costs when flipping houses, as these costs can significantly cut into their profits. To reduce expenses further, investors may wish to explore alternative financing methods like hard money loans; however, this might prove too risky for novice investors.
4. Commercial Properties
Comparable to residential structures, commercial properties are designed for business use and generate income, making them a viable source of real estate investment. Examples of commercial properties are offices, warehouses and retail spaces.
Commercial property investments also tend to do better during economic crises than homes or apartments; however, as with all investments it’s essential that you conduct adequate research on them and understand both its advantages and disadvantages before making your decision.
There are various approaches to investing in commercial property: you could purchase an entire building or select a REIT (real estate investment trust), with passive returns. Or perhaps landlording or flipping are your priorities – whatever works for you best should always be chosen as the form of real estate investment you pursue.
Crowdfunding may not be your only real estate investment option – there’s also the public market REITs. These investment vehicles trade on public markets and offer investors exposure to real estate investments.
These investments tend to be passive investments, meaning the investor doesn’t exert direct control over any particular project or venture; yet still achieve quality returns due to their diverse nature of investment vehicles.
Crowdfunding has quickly become a trend in real estate as an entryway into investing, but proper due diligence must be completed prior to investing any funds on an online platform. Crowdfunding should also be seen as an illiquid asset which could affect overall portfolio performance negatively.