What to know about invest­ing in real estate

Investors look for vari­ous oppor­tun­it­ies they hope will help them grow their wealth. Some invest in the stock mar­ket dir­ectly by buy­ing stocks and bonds, while oth­ers choose a more pass­ive form of invest­ing like index funds. Cer­tain investors prefer to back enter­pris­ing entre­pren­eurs, and some people determ­ine that real estate is the avenue to pur­sue.

There are sev­eral dif­fer­ent ways to invest in real estate, includ­ing buy­ing a home. Invest­ing in real estate can be luc­rat­ive, although the return on such invest­ments can be affected by high interest rates. When interest rates fall, investors often come out of the wood­work. Accord­ing to a 2022 Bankrate sur­vey, 29 per­cent of Amer­ic­ans said that real estate was their prime pick for invest­ing money they won’t need for at least 10 years. Investors con­sid­er­ing real estate have many options to choose from.

Become a land­lord

Nerd­Wal­let says buy­ing a prop­erty with the inten­tion of rent­ing it out is one of the most com­mon ways to invest in real estate. However, this could be one of the more labor-intens­ive real estate invest­ment options, as it requires prop­erty own­ers to field calls from renters and always be avail­able to tackle issues that inev­it­ably arise. Plus, if renters are not prop­erly vet­ted, land­lords may end up with less-than-ideal ten­ants. While there are man­age­ment ser­vices that can off­set some of the work, farm­ing out tasks comes with expenses that can cut into profits. Still, when a suc­cess­ful renter-land­lord dynamic is estab­lished, this option can provide sig­ni­fic­ant long-term income.

Flip­ping prop­er­ties

Buy­ing a prop­erty and “flip­ping it,” which means renov­at­ing and put­ting it up for sale shortly after, is another real estate invest­ment ven­ture. Flip­ping requires a lot of work and per­haps even some extraordin­ary skills. First, it involves find­ing up-and-com­ing neigh­bor­hoods and then renov­at­ing within a reas­on­able budget so that you can sell the home at a premium. Remod­el­ing costs can run high, and the time involved in flip­ping may be longer than investors anti­cip­ated.

Buy­ing your own home

Build­ing equity in a home cre­ates a nest egg that homeown­ers can tap into at a later time, par­tic­u­larly when they choose to sell. Bankrate says banks treat owner-occu­pied prop­er­ties more favor­ably, giv­ing bor­row­ers lower mort­gage rates and requir­ing lower down pay­ments.

Pur­chase REITs

REITs are real estate invest­ment trusts that enable investors to invest in real estate without actu­ally touch­ing phys­ical real estate prop­er­ties, advises Nerd­Wal­let. REITs are like the mutual funds of the real estate realm, and include com­pan­ies that own com­mer­cial real estate. REITs can pay out high dividends, mak­ing them pop­u­lar retire­ment invest­ments. Dividends can be rein­ves­ted to grow your money fur­ther.

Invest­ing in real estate can be a worth­while option for people who want a tried-and-true vehicle for see­ing their money grow.