5 Great Ways to Invest in Real Estate
For many years, real estate has been one of the best ways to get started in investing. In fact, Mark Twain once counseled potential investors to buy land because they're not making any more of it. Today, real estate investing is more complex than it was in Twain's day. But, there are still many compelling reasons to invest in land and the structures we put on it. There is no one right way to invest. Real estate investment can be made through several vehicles, each with its own pros and cons. Continue reading to learn about five ways to invest in real estate.
Real Estate Investment Trusts: Hands-off and Great for Beginners
Real estate investment trusts (REITs) are companies that own large amounts of commercial real estate. The trusts, in turn, are traded on stock exchanges where individual investors can purchase shares. By law, a REIT must return at least 90% of their taxable income to their shareholders. This can add up to hefty dividends for investors. Why should new investors consider REITs? The low barrier to entry and easy liquidity keeps the risk exposure minimal. However, people investing in REITs should be aware of the tax implications of this investment. Dividends are not taxed at the same rates as ordinary income.
Residential Real Estate Turns Homeowners Into Investors
Anyone who is paying off a mortgage or owns their home outright has invested in residential real estate. Houses, condos, and apartment buildings are all forms of residential real estate investment. People who wish to make money from this type of real estate can buy, renovate, and sell properties. They can also buy properties then collect rent from tenants each month.
Many real estate investors start with this type of real estate because it is less expensive. Most people already budget large amounts monthly towards rent, so why not put that money towards a property that builds equity instead? Distressed houses can often be purchased for well under market value and sold for more after making high-ROI home improvements. Investors need to be sure that they have the funds and ability to make necessary repairs. Additionally, residential tenants can fall into situations where they can't pay their rent, which can mean that investors lose income.
Commercial Real Estate Shows High Overhead and High Returns
Strip malls, retail store locations, or office buildings are all types of commercial real estate. Commerical investing often requires more capital than individual houses. However, many investors in this area buy using commercial mortgages.
This type of investment can pay off well since tenants often sign multi-year leases. Costs are lower for commercial landlords, as tenants are also often responsible for most improvements and repairs.
Go Big with Industrial Real Estate Investments
Warehouses, factories, and certain types of mines all fall under the umbrella of industrial real estate. This is a type that has a higher cost of entry but that offers many advantages. The tenants almost always maintain industrial real estate. However, property owners need to be sure that the activities on the property fall in line with local code regulations and environmental requirements. Clean-up of industrial sites can be dangerous and expensive if guidelines are not followed. Industrial property buyers should still conduct an inspection before purchasing.
Invest in Unimproved Land for Unlimited Possibilities
Land that has no current structures is known as raw or unimproved land. It is possible to buy parcels that range in size from several acres down to a fraction of an acre.
This is a type of real estate investing that requires a great deal of research. There are building codes that need to be conformed to even in very remote areas. Additionally, building on a property can come with high costs. For instance, it may be necessary to have water or power supplied to the property before construction begins. Buyers also need to know about issues such as flood plains and the state of the local real estate market.
Get Started in Real Estate Investment Today
No matter what type of real estate investing someone chooses to do, understanding their options is key. They need to know what the risks are and what they can expect regarding return on their investment. By taking the time to learn about the opportunities available, investors can limit their risk exposure while increasing the value of their investments.