It is well documented that fewer and fewer people are owning the homes they are living in. It is a harder decision than ever before if you should own a home outright or rent. Millennial’s notoriously are choosing the flexibility of renting over owning a house in historic numbers. While many people people are choosing to rent there is another question you should be asking yourself. Should I invest in real estate? For many owning a home is the single biggest investment they will ever make, but is real estate investing a strategy that fits your goals?
Even if you chose to rent for the flexibility of being able to pick up and move whenever you want, it still may be a good decision to invest some of your capital into real estate. Making an investment into real estate can seem like a huge undertaking but here at The Reeves Team we will show you that it doesn’t have to be the case. Below are four different ways to invest in real estate ranging from the traditional to the unique.
Option #1 Owning a rental property
When people think of investing in real estate this is typically what they think of. Owning a rental property can be a great investment. Housing for the most part appreciates over time and you can also gain cash flow if you are able to collect more in rent than it costs to own the property. There are some things to consider before deciding to purchase a rental property. You will either need to plan on spending a significant amount of time handing matters related to your rental unit, or you will need to hire a property management company which can eat into your profits. Another great thing to remember when purchasing a rental property is the possible tax deductions. Expenses are tax deductible and if there are any losses related to the property they can offset gains from other investments.
Option #2 Investment Groups
If you want exposure to the real estate rental market but don’t want to get your hands dirty by being a landlord you always have the option of an Investment Group. Typically if you are investing in an investment group you will be investing in a company that purchases, or sometimes builds real estate. Often the type of real estate you are investing in will be condos or apartments. Similar to owning your own rental property and hiring a property management company their is typically management overhead that will eat into your profits. The benefit of an Investment group over a rental property is that you are more hands off in a way that you would typically see with a mutual fund or stock portfolio. The negative side is there are more fees and you have less control than you would if you had your own rental property. You will also need substantial capital to start investing in investment groups.
Option #3 Real Estate Investment Trusts
If Investment groups are similar to mutual funds or stocks then REITs are nearly identical. REITs like many stocks will pay dividends and are basically the same as owning stocks. This is good if you are familiar with owning stocks but you are not comfortable owning large amount of real estate. REITs can be a great investment and can help you create a diversified balance sheet when you are investing. You are however, less likely to hit a home run with REITs because unlike Investment Groups and rental properties they are not leveraged. This means you don’t have the option of taking out a loan on a property so the gains and losses are not going to be as large as if you invest on a large property by taking out a loan.
Option #4 Flipping Homes
This one is not for the faint of heart. We do not recommend flipping homes unless you know exactly what you are doing and have lots of experience in the real estate market. If done right you can make a great deal of money flipping homes, but there is also a lot that can go wrong. When flipping homes you typically have high interest short term loans on a property. If you are not able to turn the home around and sell it quickly your profits could very quickly turn to losses. Also if the real estate market takes a turn you could be left holding a home you never wanted and paying extremely high interest rates on it. However, if you are handy and know how to spot a good deal flipping homes can be a very lucrative business.
So what do you think about these 4 options for investing in real estate? Do you use any of these strategies? Let us know in the comments section below.