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Real Estate Investments – Options To Consider

Real estate investments offer an ideal way to diversify your portfolio and help protect against unpredictable asset classes such as securites. Tangible assets like property tend to appreciate in value when other asset classes decline, providing a significant buffer against fluctuations.

Some individuals invest in real estate without actually owning the building itself by purchasing shares of real estate investment trusts (REITs) or investing through online platforms – these passive investments require less maintenance.

Residential Rentals

Residential rental property investment is one of the most common forms of real estate investing, and may include single-family houses, condominiums and apartments. Rental properties provide steady sources of income while having potential to appreciate over time.

Single family home investing can be more profitable than investing in other residential rentals, yet it does come with risks to consider. Your property might not appreciate in value over time or it might sit vacant for long stretches. Furthermore, landlord costs and hiring property management firms could eat away at your profits and leave a hole in your profits.

Investors can invest in commercial properties like office buildings and strip centers and charge companies rent to use the space. This type of investment requires large sums of capital to participate, making it difficult for first-time investors. Furthermore, it may be challenging selling off these properties when they stop performing. Investors may purchase REITs for exposure to real estate market without actually owning physical properties.

Commercial Rentals

Commercial real estate refers to properties used for business use by tenants who rent them out as rentals, such as office buildings, retail shops or manufacturing facilities. Most people do not purchase and live in these types of buildings so most often they are rented out.

Landlords often charge flat rental rates for commercial spaces while others use percentage leases where tenants pay a portion of their gross income as rent. Percentage leases are particularly popular among retail and restaurant businesses and can help landlords offset low rental rates during slow months.

Commercial properties often require more capital than residential rentals, making direct investment not feasible for most investors unless they have ample funds available to them. Investing indirectly through REITs (real estate investment trusts) or other real estate partnerships may offer an easier and less risky solution, offering greater liquidity than most forms of investing.

Flipping Homes

Flipping houses is an increasingly popular form of real estate investing, involving purchasing run-down properties and renovating them to resell for a profit. Thanks to reality TV shows such as HGTV, this strategy has gained tremendously in popularity.

Real estate investing carries its own set of challenges. Acquiring property requires substantial capital outlay, with renovation costs sometimes becoming unexpectedly higher than estimated. Furthermore, it’s crucial that investors understand how tax laws impact property investments; having an accountant on hand is also key in staying up-to-date on changing regulations.

When buying and renovating properties, it’s essential that you avoid going into debt. That way, should the market crash, you won’t find yourself stuck with costly properties you cannot sell. In addition to mortgage payments, investors are also responsible for property taxes and homeowners insurance payments which can add up quickly. As with any form of investing, knowing your local market and having a solid plan in place are paramount for success.

Larger-Scale Rentals

Many beginning investors opt to purchase and rent single-family homes or even larger parcels of land that could generate monthly revenue through hair salons, pizza restaurants and mattress stores. When making this type of investment, make sure the management company you invest with has low debt, adequate funds for property maintenance costs and clear goals for the future.

Another approach to real estate investment is buying all or part of larger properties such as apartment buildings or housing communities, either through hiring an experienced investor or by joining forces with people who share similar financial goals and can pool resources together.

Leverage, or borrowing funds to purchase property, can increase returns but magnify losses in an economic downturn. Therefore, it’s critical that market analyses include sales and rental information as part of any due diligence. Real estate investments may also provide a hedge against inflation, particularly if rental increases outpace inflationary pressures.