Real estate is a popular option for many investors. Many want to get involved when they learn that many fortunes were built with real estate. There are a couple of different vehicles that investors can use for this class of investments. They all have their advantages and disadvantages.
Real Estate Investment Trusts (REITs)
These are the easiest to access. The largest ones have shares on stock exchanges. They are required to return 90% of their taxable income to shareholders. This means the dividends tend to be quite hefty. For liquidity, they are unrivaled amongst real estate investments. You can choose what type of class of real estate to invest in. Some REITs only invest in triple-A office skyscrapers, while others focus on multifamily. You’ll also be well-diversified, and REITs are a very passive investment.
A drawback is that you can’t manage the property. One thing that people like about real estate is that you can do things like increase rent or improve the property to increase its value. With REITs, for the most part, you’re strictly a small and passive shareholder.
There have been a couple of sites that have popped up recently that offer crowdfunding for real estate. They have a list of investment ideas, and you can invest a few thousand. But, unfortunately, many of them are only open to accredited investors. This is the term for people worth over $1 million, not including the value of their home. Another way to qualify is with an income of over $200,000.
One issue with crowdfunding is that they have a concise track record. The platforms have yet to withstand a real economic downturn.
Residential Real Estate
This is one of the most popular options. It includes everything from renting out a spare bedroom on Airbnb to buying a rental property to fixing and flipping. Housing remains in demand for the vast majority of markets. As long as your property is well maintained and in a populated area, you’ll get prospective tenants.
Commercial Real Estate
Commercial real estate is leased to businesses. This includes everything from small restaurants to gas stations to strip malls. Leases tend to be longer, and you’ll probably go a long time in between tenants.
Raw land can be a jackpot but requires a sharp eye. Regardless if there are any buildings, you’ll need to pay taxes every year.
Real estate can be a great investment class. However, knowing the various types is your key to success.