6 Types of Real Estate Investments You Should Know About

For many people, the idea of investing in real estate is a pipe dream. They imagine that you need a fair amount of capital, as well as the time and resources to take care of tenants. However, buying rental properties is only one type of real estate investment. There are far easier ways to invest in property.

If investing in real estate is something that appeals to you, it is well worth investigating the different types of real estate investment you can consider. This will then enable you to determine the best route for you, and means that you can make a more informed decision.

To help you get started, these are 6 types of real estate investments you should know about.

1. REITs

Real estate investment trusts (REITs) provide the easiest way to dip your toe into the property waters. You can buy REITs just like you buy stocks. You can do so through your regular brokerage or your retirement annuity. Today, with real estate investment apps, it is easier than ever. They provide means of tracking your investments with an app and even buying and selling REITs.

What do REITs actually give you? You can invest in either equity REITs and mortgage REITs. With equity REITs, you are investing in property itself, while mortgage REITs will get you a share of real estate loans.

REITs provide a great way of investing not only because it’s easy, but because it is fairly safe too. The Securities and Exchange Commision (SEC) regulates them as they are publicly traded. This ensures that you will not lose your money to opportunistic brokers or in unsecured investments.

Since REITs are a low risk investment, they have low opportunity for growth.

2. Crowdfunding

Real estate crowdfunding is somewhat similar to the concept of REITs. You are becoming an investor in one or more properties owned by a whole host of investors. They are not publicly listed, however, and are more accessible to novice investors without a lot of money to spend.

Crowdfunded property investments can be a good idea. But, whereas REITs are regulated by the SEC, crowdfunding models are less secure.

3. Rentals

Buying properties to rent out to tenants is one of the oldest and most consistent ways of making money through real estate investing. Many of the richest people over the years have made their fortune in this kind of real estate investment. Buying a rental property is an investment in a means of income that will continue to pay out dividends indefinitely.

A major advantage of buying rental properties is that you can accurately calculate your return on investment (ROI). You have a fixed monthly mortgage payment, receive a fixed amount of rent, and know the basic expenses you’ll accrue on the property.

You can also get a lot of tax benefits when you own real estate, by writing off mortgage interest, property management costs, and insurance.

Now is not a bad time to buy rental properties. There is huge demand for properties to rent, especially with housing so expensive. You can make a lot of money even as the property market struggles.

Buying a rental does require a fair amount of capital, however, as you need to pay a deposit as well as transfer fees. It also takes work, as tenants have the right to demand certain standards from you, including the ability to get in touch for any emergencies. Hiring a property manager helps, but is yet another expense.

4. Airbnb

There are pros and cons to using your property for short-term rentals as with Airbnb. In theory, you can make a lot more money than on long term rentals, especially during peak times in a city that gets many tourists. However, you don’t have the same security as you would with a long-term renter.

Airbnbs also require a lot of work. You will need to clean the unit, liaise with guests, market, and do the admin. Unless you want to take on another job, you will have to hire multiple employees.

One major risk with short-term rentals is that events which negatively impact tourism can seriously harm your bottom line. These events can range from economic recessions to natural disasters to global pandemics.

5. Flipping Houses

Flipping homes is a real estate investment that is often romanticized by creative minds. The idea of being able to turn a profit on a home through renovations and decor is enticing, especially to those with experience in architecture and interior design. However, flipping a house does not guarantee you any money.

The major problem is not that your financial and time investment won’t be rewarded with dividends. Rather, it is that you cannot predict the property market. You may do an incredible job on the house with minimal costs involved and raise its concrete value. But if the housing market is stagnant or on a downward spiral, you’ll be lucky to sell the house at the same price you got it.

Furthermore, there is always a risk that your vision will not come to fruition due to foundational problems with the home.

At the moment, with the housing market cooling, trying to make money from flipping a home is a risky endeavor.

6. Rent Your Own Home

Finally, an investment many people have made money from over the years is renting your own home out to other singles or families. If you have a cottage in the garden or even just a spare room, you can make some money by finding a tenant. Depending on the size of your home, you can get them to cover a fair chunk of your mortgage.If you don’t want to rent out parts of your home long term, you can use an app like Airbnb to occasionally make some extra bucks.These 6 methods of investing in real estate show that the property market actually offers diverse ways to make money. Try one or more of them to start making a regular income.