How to Invest in Real Estate

Real estate has become a popular addition to investment portfolios, and not just the kind of physical property you live in. There are many types of real estate investing and, like all other investments, they carry a level of risk. It’s important to learn about the different options and how they work so that you can make an informed decision, one of the best option is

One way to invest in real estate is to buy a rental property and rent it out for 12month or longer periods of time. This is hands-on investing and requires a good deal of attention to detail, but it’s also a potentially high-return option. Another option is to invest in real estate investment trusts, or REITs, which are like mutual funds that own properties and provide passive income through rent or dividend payments. These are easier to manage and often have low fees, but they may not provide the same income potential as a physical property.

You can also invest in a business that uses real estate as its primary asset, such as commercial or industrial property management. This is an active form of investing and requires a significant amount of knowledge about the real estate market, building systems and construction and finance. It’s also a riskier option because there’s always the possibility that the real estate market will collapse or that the property will be damaged by a natural disaster, fire or flood.

A less hands-on but still financially rewarding option is to purchase a multifamily home and rent it out for a month-to-month basis or short-term rentals, such as those provided by Airbnb or other companies. It’s possible to do this with cash and still earn a decent return, but it’s important to weigh the risks carefully and be prepared to put in a lot of work.

As a general rule, you should only invest in real estate if your financial situation allows it and if the investment fits your goals. That means that you should have a clear idea of why you’re interested in the asset class and know what your risk tolerance is. You should also have a clear understanding of the costs associated with investing in real estate, such as maintenance and repairs, and be prepared to pay capital gains taxes when you sell. One of the most important steps is to minimize taxes and transaction costs, which are much higher than in other investment classes. This is an area in which my book Best Practices for Successful Real Estate Investing has extensive advice and in which I specialize.