Real estate investment is an effective way to diversify your portfolio, as its tangible assets provide a counterweight against “paper” investments like stocks and bonds that tend to decline over time. Real estate’s tangible assets may rise when others decline.
But you should carefully select both location and property when making this investment decision. A home located in an area with high crime rates or subpar schools may not appreciate as rapidly compared to one located in more desirable surroundings.
Single-family homes and duplexes that you rent out for income offer the potential of cash flow investment opportunities, while depending on their neighborhood they may even appreciate in value. Unfortunately, residential rentals are one of the more laborious forms of real estate investment: finding tenants, maintaining the property, paying repairs or eviction costs all eat into profits significantly; hiring a property management company might ease some of these hassles, though this will add costs.
Rental properties range from commercial rentals such as office buildings and warehouses, warehouses and retail stores, or short-term stays like vacation homes and Airbnb rentals to financial vehicles such as REITs and crowdfunding platforms which enable investors to purchase shares of a portfolio of rental properties.
Even without the resources to invest in rental properties, you could still rent out space in your home or garage by opening an Airbnb account and listing it. Just be sure to do your research first to make sure it aligns with your financial goals before diving in!
Commercial real estate investments provide investors with more complex real estate opportunities and can generate higher returns, and can range from large office buildings rented out to white-collar business owners all the way down to strip centers and warehouses rented to industrial companies.
Investors can purchase single-tenant retail properties such as restaurants and big box stores, or pad sites (empty buildings that can be quickly occupied), as well as multifamily dwellings like apartment buildings and condominiums that qualify as commercial real estate if they contain five or more dwelling units.
Real estate investment trusts (REITs) may also provide investors who lack the capital to purchase commercial buildings themselves with another investment option: diversifying your investments via real estate investment trusts (REITs). REITs pool investment dollars to invest in various properties. Similar to mutual funds, REITs provide diversification for your portfolio by pooling investment dollars across properties of various kinds – unlike residential real estate which may benefit from longer lease agreements that provide security in economically challenging times.
Large-Scale Residential Rental Portfolios
If you want to expand your real estate investment portfolio with multifamily properties, REITs that specialize in apartment buildings and manufactured housing may offer higher profit margins. Investors should focus on market fundamentals when investing in multifamily properties – for instance population growth and job opportunities are essential considerations – falling vacancy rates and rising rents should also be key considerations when searching for multifamily investments.
Some investors favor flipping fixer-upper properties for quick returns. Although this strategy requires additional work and may not provide consistent cash flows, it can help build your REI portfolio faster.
At its core, your real estate investment portfolio depends on your financial plan and risk tolerance. You should decide how much money to invest, what risks you’re comfortable taking and whether short-term gains or passive income is what your goal is. Furthermore, be informed on any industry changes and their effects on real estate investments.
Other Types of Real Estate
Real estate investment can be an attractive way to generate passive income over time, diversify a portfolio and protect against inflation. There are various forms of real estate investing you could pursue: wholesaling/flipping properties; renting apartments out to tenants for steady returns; syndication for larger commercial properties.
Residential real estate is the most common form of real estate. This category encompasses single-family homes, condos and multifamily apartment buildings. It can serve as a good indicator of economic health – for instance when construction of new homes increases rapidly it often results in greater consumer spending.
Office buildings are another common form of real estate that can provide lucrative returns; however, recent trends in occupancy may present investors with obstacles to their profitability. Mixed-use real estate investments include everything from retail stores with apartments above to larger developments combining offices and restaurants.