Real estate can be a smart addition to any portfolio, offering high returns and passive income. But it’s not for everyone — becoming a landlord can be time-consuming and expensive.
Fortunately, there are many ways to get involved in real estate investing without adding the responsibilities of managing properties to your list of obligations. Here are a few unique approaches:
Real Estate Investment Trusts (REITs)
Real estate investment trusts (REITs) are publicly traded companies that invest in property and lease it out to tenants for a profit. They are required by law to invest at least 75% of their assets in real estate and to derive at least 75% of their income from rents on real property, interest on mortgages financing real property or from sales of real estate.
REITs offer a number of advantages to investors, including lower volatility than stocks and the ability to provide stable dividends. They also can help diversify a portfolio and offer an attractive hedge against inflation.
REITs come in a variety of shapes and sizes, with each type offering different investment opportunities. Equity REITs own and manage property, including commercial properties like shopping malls, office buildings and data centers, while mortgage REITs hold and manage a portfolio of mortgages. Hybrid REITs have both equity and mortgage holdings, offering more diversity and protection from real estate market swings.
Real Estate Investment Groups (REIGs)
Real estate investment groups (REIGs) are a great way for investors to diversify their portfolio and learn the business of rental property investing. By pooling capital, REIGs can take on more deals and increase the return on their investments. REIGs can be local or nationwide and operate a variety of strategies.
REIGs may also be structured in many different ways, so it is important to do your due diligence before joining one. This includes examining the group’s financial statements, legal documents, and property portfolio. It is also a good idea to conduct a background check on the group and its leadership.
Another benefit of REIGs is their ability to negotiate as a group and gain access to exclusive resources. This can help to improve property prices, financing terms, and property management services. However, the lack of control over investment decisions and the potential for fraud can make REIGs a risky choice.
Crowdfunding
Real estate crowdfunding involves a collective of investors pooling their money to fund property investments, with an eye toward making a profit. The initial investment can be as little as a few hundred dollars, making it accessible to individuals without a significant disposable income.
This type of real estate investment offers a number of benefits, including diversification of your portfolio and geographic diversity. Some markets, such as Cleveland, Ohio, have been relatively stable compared to other areas like Las Vegas and Phoenix, which saw housing prices decline significantly before the global financial crisis.
The JOBS Act passed in 2012 made it legal for individuals to invest online through real estate crowdfunding sites. However, it’s important to consult a financial professional before making any decisions to ensure you’re choosing the right options for your needs. This will help you avoid potential pitfalls and make smart choices for your portfolio. The expert can also provide guidance on navigating the various tax implications of this type of investment.
Leasing to Buy
Real estate investment can yield a decent return if it’s done properly. However, it’s important to consider a number of factors before making any big decisions. These include your financial goals, risk tolerance and the current real estate market conditions.
Investing in rental properties can be lucrative, especially for individuals with do-it-yourself renovation skills and the ability to manage tenants. However, you will need significant capital to finance upfront costs and cover periods when the property is unoccupied. In addition, you’ll need to make regular maintenance payments and handle tenant issues.
Real estate investments can also be an effective hedge against inflation if the rents keep pace with or even exceed the rate of inflation. Additionally, investing in property types that are more resistant to inflation such as multifamily buildings can help increase your profits. You may also consider working with a real estate sponsor to take a hands-off approach and reap the rewards of direct property ownership without the headaches.
