Real estate is one of the most reliable, long-term investments out there. However, real estate does require a noteworthy cash outlay, patience, and due diligence before making a smart buy. The good news is, real estate can be among the most rewarding additions for investors.
Whether you’re a real estate novice or a well-engaged investor, there are a few ways to dip your toes into the water. And with an investment portfolio containing a real estate component, you can reap the benefits of a historically appreciating asset.
1. Scoop Up a Vacation Rental
It’s not uncommon for vacationers to relish their time spent in a favorite locale. Conversations over dinner and drinks in a long-anticipated vacation spot easily shift to talks of buying a rental. But purchasing real estate far from home brings an onslaught of responsibilities and risks. However, the prevalence of property management companies today can have you toying with the idea more seriously.
Consider the vacation spots you know and love as you build your vacation property search list. Depending on your goals, you may want to purchase a place that you can enjoy throughout the year. Other times, your goals may be in it just for the money. There’s no right way to go about it, but it’s important to consider what makes the most sense for you.
Taking on a mortgage for an investment property can present some complexities. Depending on your usual expenses and obligations, the financial commitment required can quickly max out your debt-to-income ratio. That’s why arrangements like co-ownership can help you achieve your real estate investment goals.
In co-ownerships, you share the expense with one or more partners and have arrangements for usage, maintenance, and profits. This may be a great option for those new to real estate investing. Co-ownership can reduce overall risk and split the responsibility with other like-minded and pre-vetted co-owners. Plus, your investable income can be spread across multiple properties in additional co-ownership relationships. That means you can increase your real estate exposure and have more vacation homes to use and enjoy.
2. Start Flipping Houses
Today’s home improvement shows are infiltrated with accounts of house flipping that yield significant financial rewards. But it’s not a task that’s reserved for the experts. With careful research, measured planning, and strategic implementation, house flipping can be available to everyone.
First, determine what amount of money you’re able to dedicate to your house-flipping project. In most cases, your initial investment will be tied up in your project until you’re able to make a sale. Then, you’ll need to determine if your goal is to roll your profits into the next project or take it elsewhere.
Next, you’ll need to be realistic with how much work you’re willing and able to do yourself. If you fancy yourself handy, you may be able to reduce overall costs by completing some of the work yourself. But even if you’re capable of doing the work, the cost of your time is important to note as well. If working on your property takes away from other income-earning opportunities, it may make more financial sense to hire contractors.
Even with the additional expense, hiring out labor can result in better quality and tighter timelines. And when you operate with a tighter turnaround, you’ll pay less interest on your loan and realize profits sooner. Work with a real estate agent with expertise in investment properties to gain insight into emerging neighborhoods and red flags. Plus, they may have insider information on soon-to-be available properties, meaning you’ll gain access to great investments first.
3. Upgrade Your Investing Portfolio to Include Real Estate Exposure
Sometimes, the financial outlay of directly investing in real property can be more than you’re willing to take on. But that doesn’t mean you can’t benefit from the real estate space. Take a look at your current investment portfolio and identify where you’re exposed to real estate.
Real estate investment trusts or REITs are common investment categories that can be found in index funds. Typically available to all investors or through your employer-sponsored plan, they can provide solid returns and generous dividends. Review the one, five, and 10-year performance and determine if they can fit into your long-term investment strategy.
Outside of the traditional stock market options, you can also invest in real estate indirectly. With a management company running the show, you have no day-to-day responsibility. Sometimes the group focuses on a buy-and-hold strategy or flipping properties at scale. With the power of a group, you could reduce overall risk and obtain a greater investment portfolio.
As with any investment, research to determine if an investment group has a solid reputation among investors and end customers. Review their investment performance and do your due diligence throughout your engagement with the firm. Gain a clear understanding of exit rules, minimum investment time frames, and expectations for ongoing investments.
Reap the Rewards of Investing in Real Estate
Real estate investments offer more than easy access to a desirable vacation spot. Investments in real estate unlock opportunities for tax breaks and deductions only available to property owners. Plus, the increased cash flow while allowing renters to pay down your loan means you’re making money from multiple angles.
Dig into the research and choose the real estate investment option that best aligns with your goals. Before long, you’ll be reaping the rewards of growing property values and a well-diversified portfolio.