Investing in real estate can be an intimidating affair. There is a seemingly endless list of ways that you can invest in the property market. While this can be daunting, it also means that there are opportunities in the market for almost anyone, whether you simply want to take out a mortgage on a home or build a nationwide property empire.
Regardless of the scope of your capital or desires, there is an option out there to suit your requirements. Additionally, these do not all need to come with the endless headaches that financing and maintaining rental properties bring. With that in mind, here are some tips for adding real estate to your investment portfolio.
Real Estate Investment Trusts (REITs)
If you are looking for a quick route into real estate investment that does not require substantial capital, then REITs could be for you.
These are publicly traded companies that raise money selling shares, stocks, and bonds. The proceeds from these sales are then funneled into buying and leasing real estates like shopping malls, office buildings, apartments, and warehouses. The profits that REITs make on their investments are then distributed to investors in the form of dividends.
Handing your money over to REITs is an excellent option for a novice investor. It takes much of the stress and fusses out of the process of property investment. If you find the idea of property investment intimidating, this could suit you as the property management and logistics are all handled by the trusts’ management team. It’s an excellent form of passive income that regularly pays out more than many stock-based investments.
If you are interested in this investment, you can begin buying and selling shares of REIT stock on the market using a brokerage account since these are publicly traded companies. This highlights a further benefit of investing in REITs; they are one of the most liquid property investments available.
Another option is to buy shares of exchange-traded funds (ETFs) on the market. These entities own shares of multiple REITs. If you do not have much investment capital, you can purchase fractional shares of REIT ETFs. These micro-investments allow smaller investors to attain diverse real-estate portfolios.
Investing in Your Own Home
Investments in primary residences are probably the most common way that individuals will invest in real estate. Generally, this relies on taking out a mortgage, making payments each month, and gradually taking ownership of your own home. Savvy investments, a bit of luck, and demand in the area when it comes to selling can allow you to make significant sums when putting the building on the market.
Investing in your own home can help you to build wealth over an extended period. However, annual returns are typically not as high as you might expect. In the period between 1994 to 2019, homes increased by around 3.9% each year on average. While this isn’t a terrible return, it isn’t the quickest way you can make money in the real estate market.
It is worth noting that your location will affect the return you can generate from investments in your primary residence. Some areas have much higher rates of appreciation since they are typically more desirable than other locations. However, as a general rule, the value of your home is unlikely to sky-rocket dramatically. This rings especially true once you factor in the costs of maintaining and repairing the building over the years.
When you compare the returns from REITs to investments in your own property, there is a startling difference. REITs generate returns on investment of as much as 11% each year, which is significantly more than the 4% you might expect from household appreciation.
However, while the return might not be as high as other investment opportunities, this isn’t to say that you should avoid buying your own home. The government generally provides significant support to the mortgage market, and there are various programs designed to help first-time buyers. Using these programs, you can purchase real estate at much lower prices than you might with other investment options, so it could still be a viable strategy for growing your wealth.
Rental Property Investment
Consider purchasing properties for rental if you view real estate investment as a major career opportunity that you are willing to invest a significant amount of time and money in. Rental properties provide steady and reliable income and also benefit from appreciation over time. With that being said, they are easily one of the most time-consuming ways to invest in real estate.
There are two main kinds of opportunities to make money; long-term and short-term rentals.
Firstly, long-term rentals are set up to be let out for at least a year. In theory, these can provide you with a regular monthly income, although this may be affected by the reliability of your tenants.
On the other hand, short-term rental opportunities provide for rotating tenants whose stays can be as short as a single night. You could turn your entire home or apartment into such a property if you are not living there on a full-time basis, or you could invest in a standalone property for this purpose.
Rental properties offer a brilliant return on your investments, but you will pay for this in the effort required. It takes a lot of time and research to find and vet appropriate tenants. Additionally, ongoing maintenance of the properties is needed.
With that being said, many property management companies exist that can reduce the headaches associated with property rental. This will eat into your returns, but if you are looking for a means to make passive income with as little effort possible, this could be right for you.
Educate Yourself
One of the best ways to ensure that you make adequate returns from your real estate investment is to consider real estate courses. If you are new to investing in property or simply want to enhance your investment practices, you might benefit from this.
A solid understanding of real estate economics and finance can put you in a much better position for making considered and profitable investments. Real estate courses can help build a foundational awareness of sustainable investments and how to fund your property investments.
Ultimately, gaining a real estate certification is an excellent way to ensure a theoretical understanding of property investments. You can improve your knowledge of property development, identify lucrative investment opportunities and ensure that you do not fall foul of market requirements as a novice investor.
Ultimately, if you are looking to get into the real estate game, you should strongly consider educating yourself on the intricacies of the market before making any significant investments. This will allow you to make better long-term decisions, boosting your returns as a result.
Conclusion
Getting into the real estate market can be challenging and intimidating. With that being said, there are investment opportunities for anyone, regardless of their investment capital or available time. Before entering the market, you should carefully consider your options and ensure that you know the risks and rewards of the different real estate investments available. Consider the options outlined above if you are looking to begin your property investment journey.