There are an endless variety of ways to invest in real estate, from taking out a home mortgage to building a property empire that spans the country. While the latter is probably out of reach for most of us, there’s no shortage of other options. What’s more, not all of them need to involve the headaches of financing and maintaining rental properties. Here are five strategies for adding real estate exposure to your investments.
- Real Estate Investment Trusts (REITs)
If you’d like to invest in real estate immediately, with as little money as possible, take a look at real estate investment trusts (REITs).
These public companies raise funds by selling shares of stock and issuing bonds, and use the proceeds to purchase and lease out real estate assets like shopping malls, office buildings, apartment buildings and warehouses. REITs are required to pay out nearly all of their after-tax profits to their investors as dividends.
- Crowdfunding Real Estate Platforms
Investors who’d prefer to take a more hands-on approach should check out crowdfunding real estate investing platforms. Many of these online platforms let you invest in specific real estate development projects, rather than large, generic portfolios of properties.
Real estate crowdfunding platforms pool money from multiple investors to fund development projects. They generally require investors to commit to real estate investments for longer periods of time, five years or more in many cases.
- Invest in Your Own Home
Primary residences are the most common way most people invest in real estate. You take out a mortgage, make your monthly payments and gradually build ownership in your home. With luck and strong demand in your local market, you can cash in on the equity when you sell your home.
While investing in your own home can help you build wealth over the long term, average annual returns are less than you might expect. From 1994 to 2019, homes only increased in value about 3.9% annually, according to a report from industry analyst Black Knight.
- Invest in Rental Properties
If you’re looking to make a major commitment to investing in real estate, consider purchasing rental properties. Rentals can offer steady cash flow as well as the possibility of appreciation over time, but they are one of the most labor-intensive methods of real estate investing.
There are two main ways to make money with rental properties:
Long-term rentals. These properties are generally designed to be rented for at least a year and in theory provide a steady monthly cash flow, though this depends on your tenants being reliable. You might buy a multi-unit property or a single-family home that you rent to others.
Short-term rentals. These properties cater to rotating tenants whose stays might be as short as one night, like Airbnb. You might list your entire home or apartment when you’re away, or you could invest in a separate property meant only for short-term rentals.
- Invest in Real Estate by Flipping Properties
You don’t have to buy rental properties to maximize your profit from real estate investing. Buying and flipping properties is a common strategy, although like rental properties, flipping takes lots of work. It means renovating homes and learning to identify up-and-coming neighborhoods that will let you sell your purchases at a premium.
If your home flipping strategy involves renovation and construction, it means taking on extra risk and high out-of-pocket costs. Long story short, it’s not as easy as it may look on HGTV.
