Investing in real estate is certainly a popular option for many and comes with a wide range of advantages. Alongside the potential to earn high returns, it’s great for diversifying your portfolio and is much simpler to understand than other investment types. However, what most people don’t realize is that there are different options to choose from.
Below, we are going to go over all of the different ways that you can invest in real estate.
Interested in learning more? Then keep on reading.
Standard Rental Properties
Owning a standard rental property is one of the most well-known ways to invest in real estate. Provided you have paid off the home completely; you can generate a passive monthly income with the rent from a tenant. However, it’s important to remember that being a landlord comes with its challenges. Some of which include:
– A possible income loss if the property is left vacant for an extended period.
– A complicated and slow process if you do need to sell the home for quick cash. (Lack of liquidity)
– Regular maintenance costs that the landlord is required to handle.
– Complicated tenants that can cause damage to your property.
Vacation Rental Properties
Vacation rentals work similarly to a standard rental but have a few key differences. You own the home and accumulate “rent,” but it is for those on vacation (short-term basis). This means you can also occupy the property and have the power to “block out” dates when you don’t want any tenants. It certainly has benefits, but like everything, there are cons. You’re not guaranteed bookings which means there will inevitably be slow periods throughout the year.
Like the idea of real estate but don’t want to deal with physical properties? Investing in land only might be the right move for you. You can clear it to make it worth more or split it up and sell it in sections. While it might not be the quickest and easiest way to make money (and won’t give you any frequent cash flow), it’s still something to take into consideration.
Mobile Home Parks
Unlike standard rentals, owning a mobile home park allows you to collect rent from a variety of tenants. One of the reasons they are such a popular investment choice is because they are affordable and always in high demand. While it is possible to own an entire park yourself, it can be challenging to get approved for a loan. This is why many investors choose to pool together.
House hacking is the term used for buying a residence for yourself and a rental at the same time. An example would be purchasing a property with two or more units, living in one, and renting out the others. This means you can pay off your mortgage and potentially generate some passive income on the side. It has many advantages, and since you live on the property, maintenance is a breeze. However, you will have to sacrifice privacy.
Real Estate Focussed ETF
ETF’s known as Exchange Traded Funds, pool together money from a variety of investors. Real Estate ETFs invest this money into related securities and derivatives. It’s an ideal investment type if you’re looking for high dividend yields, and while they are some risks, they aren’t as bad as others. Alongside those that are real estate focussed there are also other options that may spark your interest. Take a look at these Canadian ETFs if you’re interested.
Flipping Houses (fix-and-flip)
If you don’t want to become a landlord and want something more hands-on than ETF’s, flipping houses is another popular investment option. It involves the process of buying a cheap property, fixing/renovating it, and selling it for a profit. It can be as complicated or as quick as you want, and when done correctly, you can make a substantial amount of money from it. However, it does require a lot of thought and planning. The last thing you want is to spend too much money on repairs and not make anything at all when you sell it. Check out these house-flipping tips before you get started.
Real Estate Stocks
Real estate stocks are a share of companies that specialize in real estate assets. Like most, you can purchase and trade them very easily online. When choosing between buying an individual stock like this or going with an ETF, it really depends on your portfolio and investment goals. If you’re not quite sure where to get started, consider speaking to a financial advisor to get their advice. You can learn more about how to find the right one here.
Real Estate Crowdfunding
Crowdfunding in real estate involves a developer raising funds for a project by reaching out to potential investors. These investors then receive a share of the development, which could be in rental returns or the final sale price of the completed property. It’s an excellent option for beginners due to its low complexity and affordability. However, it’s important to remember that it is relatively risky. Something as simple as an oversupply problem could cause the market to drop rapidly. Alongside this, there is no liquidity, and it could be a while before you see any income from it.
Finally, one of the more unique real estate investment types that you might want to look into is self-storage facilities. By owning and renting them out, you can still receive a passive income without all of the strenuous maintenance work. That being said, they still need to be managed, occupancy rates can fluctuate throughout the year, and with so much competition, customer service is vital.
And that’s it! These were ten different ways that you can invest in real estate. When choosing what is right for you, it really depends on your own personal preference. However, you might find that a combination works best.
What do you think? Are there any other real estate investments that you would add to this list?