Real Estate investments have been around for many decades now. For a lot of investors, real estate investments have turned up to be a secure and stable investment option. When one thinks of investing in real estate, buying property or land is the first thing that pops up in their mind. While it is a part of real estate investing, there are other ways to take exposure in real estate.
Since buying property or land requires a sizeable amount of capital, many people don’t consider real estate as one of the viable investment options for them. But before you make any judgments or decisions regarding this investment option, here are some of the ways to invest. We hope it will help you make an informed decision.
Paths to Investing
There are several ways to enter the real estate investment world. These ways have made the real estate sector accessible and flexible for every investor. Following are some of them:
A Real Estate Investment Trust or REIT is a company that owns, operates, or finances income-generating real estate. REIT pools money from different investors such as institutional and retail investors to own a share of a real estate property. It is similar to mutual funds but for real estate.
You can invest in REITs through a brokerage account, and it is similar to buying stocks. If we compare buying REIT units to property, the cost of investing in REIT is just a fraction of the cost of buying a property. It is a great option for investors looking for dividends as a source of income.
Real estate stocks or ETFs
Real Estate Stocks or ETFs are a great option for those who do not want to buy a property. One can invest in varied stocks, mutual funds, and ETFs related to the real estate industry. Some examples would be estate agencies, construction companies, furnishing, home appliances, etc.
Since many of these are stock options, you get to enjoy the benefits of investment in regular stocks. These stocks provide stable price appreciation or growth, liquidity, etc. with a minimum initial investment.
Renting out for a long-term or short-term
This is the most common type of real estate investment, where you buy a property and rent it out to other people. You can do it or you can hire a real estate agent to take care of it. You can choose whether you want to do it on a short-term basis or long-term basis. Vacation properties are considered as short-term rental properties and apartments or homes are long-term properties.
This process may seem very easy on the surface, but it requires a lot of time and energy to maintain the house, collect rent from tenants, keep the place occupied, etc, says MotleyFool.
It also doesn’t suit every type of investor, as it requires a little more capital to get started. Nevertheless, both of them can give you adequate returns and a steady cash-flow if you handle them efficiently.
Apart from these options, you can also try other ones such as house flipping. This involves looking at potential properties and transforming them into marketable residences. This requires a lot of capital and skill sets, but the returns achieved in the short-term can be quite high.
You can also consider investing in land. Land investments are cheaper compared to buying developed property, and it gives you the freedom of choosing what you want to do with it. This requires a lot of foreseeing, as there could be many outcomes of the land in the future.
Is real estate a good investment option?
These investments pay off really well from a long-term investment perspective. It is also important to note that the above-mentioned strategies may suit different types of investors, making it a viable investment option. Whether you want to start big or small, short-term or long-term, there is a real estate investment option apt for you.
Benefits of real estate investing
The price of a property may appreciate a lot. If there is a development in the area near your property, then your property can become highly attractive to other property buyers. The value of property keeps on changing, and we see that in most cases the price increases with time.
However, considering the absolute returns in a silo may not be the ideal way. You also need to check the other costs associated with the property, such as taxes and other investment costs.
The Balance cites another benefit of real estate investment is that it is relatively less volatile than the stock market. While the potential earning of both asset classes aren’t the same, there is a steady incline in price. Apart from this, having enough rental properties can enable you to generate cash flow at regular intervals.
Risks with real estate investing
Like every other investment option, investing in real estate also comes with some amount of risk and downsides. These investments don’t provide investors with a lot of liquidity i.e. you cannot turn a property into cash as quickly as stocks. The potential returns in these are also not as high as stock returns.
If you are willing to rent out property, dealing with tenants, property maintenance and other related activities also requires a lot of time, money and attention. Understanding the basics of real estate investing helps beginners to invest in them with ease. However, you need to keep in mind that investing in real estate is also a journey where mistakes are inevitable and you can learn from it. You need to decide for yourself, which is the right path for you and gradually make progress.