Investing in real estate can diversify your portfolio and provide income. However, it’s essential to consider your time commitment and financial goals before you decide which property or funds to invest in.
Purchasing an investment property requires significant upfront capital. Luckily, new business platforms are making getting involved in real estate easier without buying a home or apartment complex.
Large-Scale Residential Rental Portfolios
Investors looking to build an extensive portfolio of residential rental properties can now do so with new business models. These business models take the hassle out of owning property by remotely managing a collection of individual properties. They also make it easier to diversify a residential portfolio by investing in different areas. This helps protect against factors that may affect the housing market in one place, such as significant employers shuttering and sending employees home or hurricanes causing flooding and displacement.
Investing in real estate requires carefully assessing an investor’s goals and tolerance for risk. Many investors start by flipping homes in up-and-coming neighborhoods where house prices are expected to increase. But, this type of investment can only be safe if the community catches on or the renovations require more than anticipated.
Other investors prefer to buy low-cost homes and hold them long-term as tenants pay rent and property values increase. This can be more profitable than purchasing a single-family home and renovating it to sell. However, managing an extensive portfolio of individual homes can be more time-consuming and frustrating, especially for those with limited experience in the industry.
Investors who want to avoid the hassle of buying and maintaining their properties can invest in real estate through REITs, mutual funds, ETFs, LPs, or P2P crowdfunding platforms. These investments are more liquid than traditional stocks and bonds, making them ideal for investment portfolios and retirement plans.
Small-Scale Residential Rentals
In residential real estate investing, purchasing a single-family home you rent is the most popular method. This type of investment with Hartselle, AL real estate is one of the safest investments regarding your mortgage payment and property taxes. Individual investors, also known as “mom-and-pop landlords,” own about two-thirds of tiny rental homes (i.e., buildings with 2-4 units) and half of the multifamily buildings in the country.
However, owning and renting out a home is labor-intensive. You’ll have to find and vet tenants, perform routine maintenance, make repairs, and manage the property. And while you can save some time and hassle by hiring a property management company, you’ll need to pay for this service, which can cut your profits.
Besides buying and renting out a home, other options include flipping properties and investing in real estate investment trusts like dividend-paying stocks. These strategies may be more hands-off than being a landlord, but they still require some education and financial commitment to succeed. Taking courses or attending seminars from universities and real estate industry trade groups can help you learn the fundamentals of real estate investing and determine whether it’s something you want to pursue full-time. You can also take a low-risk approach to see if you enjoy the experience of owning and renting out a property by simply renting out an extra bedroom in your home.
Commercial investments are a great way to diversify your real estate portfolio. They typically offer higher returns than single-family homes and have a negligible vacancy risk. However, they’re also more complex than residential properties and can be subject to various risks that impact cash flow and overall returns.
Investing in commercial property requires more capital than flipping houses. It’s also more hands-on and requires a much larger time commitment. However, the returns can be substantial if you carefully avoid overpaying for properties and find locations with potential for future growth.
Investors can buy direct property, purchase REIT shares, invest in syndication, or participate in a crowdfunded deal. The best approach depends on your goals, investment experience, and risk tolerance. Traditional financial advice suggests including real estate assets in a diversified portfolio alongside stocks and bonds.
There are four types of commercial properties: industrial, retail space, office spaces, and multifamily apartments. Many investors choose to specialize in one or more of these categories, which can help them develop expertise and better understand the operational quirks associated with each. Larger REITs also invest in multiple commercial properties and may include other asset types, such as land or hotels. These larger REITs are often publicly traded and can be held in a retirement or brokerage account, just like mutual funds.
Online Real Estate Platforms
Real estate investing websites allow accredited and non-accredited investors-beginners to experts to enter the real estate investment market without a high barrier to entry or significant up-front costs. These platforms connect real estate developers and investors who can finance a project through debt or equity and earn distributions based on their investment. These platforms are similar to crowdfunding sites but with more regulated and sophisticated financial structures.
One of the best online real estate investing platforms is Fundrise, which offers low minimum investments and fees. You can also find other commercial real estate (CRE) investing options. These online platforms offer various investment opportunities and historical performance information on each.
Accredited investors can also use websites that offer a wide range of CRE investment options from top-tier project sponsors and developers. It has a streamlined website and investor dashboard that is easy to navigate. Users can view their portfolio and asset performance and access asset management services from the dashboard tabs.
Another option is to invest in a farmland-focused site. This platform allows you to purchase a share of farmland, making money in two ways: annual rent payments from farmers and land value appreciation over time. Like other illiquid investments, such as REITs and your rental property, you’ll have to commit your funds longer than you might with a stock.