Without a doubt, investing in real estate is one of the best ways to grow your wealth and save for retirement. While it comes with its fair share of risk, real estate investing is often less risky than investing in the stock market. It also carries with it a long-term income potential that other forms of investing can’t match.
Real estate investing isn’t a one-size-fits-all venture, however. Several options exist for investing your money in real estate, each with varying levels of risk, income potential, and capital requirements. Let’s explore some of the different types of real estate investing so you can choose the one that’s right for you.
1. Rental Properties
The most popular way to invest in real estate is to find a residential or commercial property for sale in your area. As a landlord, your potential for low-risk, long-term income is high. Of course, things break and vacancies happen – both of which can pose short-term risks and reduced profits. However, if you buy your investment property in an up-and-coming area, these issues shouldn’t be a constant concern.
Word of warning: Being a landlord can be time-consuming. You may want to consider hiring a property management company to handle the daily operations of your rental properties.
REITs, or real estate investment trusts, are another great low-risk way to invest in real estate. Essentially, they are real estate “stocks” you purchase from entities that already own and operate investment properties. There are a few different types of REIT you can invest in, or you can go for a complete portfolio of them rather than investing individually.
Crowdfunding is another way to invest in real estate, with potentially high returns. In a nutshell, a developer identifies an investment opportunity – usually commercial – and turns to investors to raise some or all the money needed in exchange for an interest in the project once complete.
While the potential for huge returns is great with crowdfunding, there are drawbacks as well. Big projects could tie your money up for years before you see any return, and should the project fail to complete for some reason, you could lose all the money you invested.
4. Vacation Rental
Owning a vacation rental is different than owning a long-term rental. Your income potential is much higher with the former, and you may be able to use it when it’s not occupied by tenants. That said, there are cons to owning a vacation rental, including increased marketing and management responsibilities, which means you’ll pay nearly double what you’d pay for a long-term rental for property management services.
Important note: Renting out vacation homes isn’t permitted in all areas. If it is, you may need a special license, which can be expensive.
5. Fix and Flip
This real estate investment opportunity is becoming popular thanks to the plethora of fix and flip TV shows on the air these days. It involves purchasing fixer-upper properties for cheap, fixing them up quickly, and then selling them at a profit. There’s a big potential for huge returns, but there are, as you can probably imagine, a lot of pitfalls.
Time is money with this type of real estate investing, and a lot can go wrong, so do your homework before jumping into a fix and flip with both feet. Real estate investing is a popular and lucrative way to increase your wealth and save for retirement. You have several types of real estate investing to choose from, so learn all you can about them and select a strategy that suits your lifestyle and budget best.