5 Ways To Invest in Real Estate

Written by Gal Greene Posted On Thursday, 02 April 2020 11:10

Real estate has become a popular form of investment, with 11.3% of all home sales being purchased by investors, most of them small ones. There is a good reason for this, as investing in real estate can be very rewarding, generating both passive income on an ongoing basis and long-term yields.

If you are interested in investing in real estate, here are five ways in which you can do this:

1. Crowdfunding

You probably have heard of crowdfunding sites such as Kickstarter, which allow people across the Internet to fund various projects. Real estate crowdfunding lets you invest in real estate in a similar way, by having you purchase a piece of a development deal.

This type of investment has many advantages, such as requiring less money than typical real estate investments and providing you with a wide range of properties to select. On the downside, it can be risky, requiring you to thoroughly research the various crowdfunding platforms prior to making an investment.

2. Fix and Flips

You are probably familiar with the concept of fix and flips from all the TV shows that have popularized it. It involves buying a property that needs considerable repair, making these repairs and other upgrades, and then selling the property for a profit.

The advantage of this type of investment is that, while returns on fix and flips have fallen considerably in recent years, you can still generate a significant amount of profit with them in a short amount of time. But there are a number of disadvantages, too, such as they require a significant amount of money and have considerable risks.

3. Long-Term Rentals

A long-term rental is a type of investment in which you purchase a property with the intent of renting the individual units within it. You can do this whether or not you plan on living in one of the units yourself.

This type of investment lets you depreciate the value of the building, which can provide you with a significant savings in taxes. If the property is your primary residence, you can also qualify for advantageous mortgages with low interest rates. The drawback of this type of investment is that you will become a landlord, which can require lots of time and effort. Being a landlord further comes with potential liability.

4. Vacation Rentals

Purchasing a home as a vacation rental is similar to purchasing one as a long-term rental. Though, instead of renting the units to tenants under a long-term lease, you rent them on a short-term basis to vacationers and business travelers on websites such as Airbnb and HomeAway.

Among the advantages of owning a vacation rental (beyond the ones that apply for long-term rentals) is that you can live in it part of the year while renting it out in other parts of the year when you are not there, which could pay off a significant portion of your mortgage and other homeowning expenses. The disadvantage is that these properties usually require a considerable amount of maintenance, and in some locations you will also face a lot of competition.

5. Real Estate Investment Trusts (REITs)

A REIT is a fund that invests in a variety of both commercial and residential real estate and trades on an exchange much like a stock. The IRS requires them to pay the majority of their profits to shareholders in the form of a dividend.

In addition to regular dividends, REITs, unlike traditional real estate investments, are liquid, meaning that you can usually trade them easily. They also generally offer high yields. On the flip side, REITS are subject to high taxation.

Summary

There are many different ways to invest in real estate, with each having its

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