When you think about real estate investing, what comes to mind, asks Brad Zackson, co-founder and director of development for full-service real estate firm Dynamic Star? Your home is one certainly, but there are many other types of real estate investments—and not all of them involve buildings.
Let's look at some of the leading real estate options and why Zackson believes they're right for you:
Historical Housing Prices
Real estate prices have historically risen over time, making housing a sound investment. However, some housing markets across the U.S. took a small hit in the Spring of 2020 as the COVID-19 pandemic gripped the nation.
But this year, home prices have reached record heights as people regained confidence in their surroundings.
A rental property is a property that you rent out to tenants.
When you rent out your property, you collect payment from the tenant. You can use the money you collect to pay off your mortgage, property taxes, and other expenses.
In addition to the cash flow that you get from renting out the property, you can also take advantage of the appreciation of your property in value, Brad Zackson offers. This is one of the reasons why many people are interested in investing in real estate, especially when it comes to rental properties.
In the real estate market, flipping houses describes the process of buying and selling properties quickly. The process generally involves buying a house at a low price, then reselling it at a higher price.
There are two approaches to flipping houses:
Repair and update: This approach involves purchasing a house that needs repairs, making those repairs, and selling the house at a higher price than you paid for it.
Hold and resell: This approach involves purchasing a house that is in good condition, holding on to it for a few months or years, then selling it at a higher price than you paid.
Real Estate Investment Trusts
Real estate investment trusts (REITs) are a type of real estate fund that pools investor capital to purchase and manage real estate. REITs have become increasingly popular in recent years as an alternative to direct real estate investment, thanks to their tax advantages.
In particular, they are exempt from paying corporate income taxes, which means investors can receive higher returns on their investments.
REITs are highly-liquid compared to other types of real estate investments.
Real Estate Limited Partnerships (RELPs)
Real estate limited partnerships are a relatively new form of real estate investment, and they are now available in every state. Real estate limited partnerships allow investors to participate in the ownership, management, and operation of a real estate project without having to put up all of the capital or take on all of the risks.
Real Estate Investment Groups (REIGs)
Real estate investment groups are people that come together to invest in real estate. They are often organized by investors who want to pool their resources and share the risks associated with investing in a property.
Investing in real estate is risky, so it's important to have an experienced group of investors on your side, Brad Zackson emphasizes.
Real Estate Mutual Funds (REMFs)
Real estate mutual funds offer investors a way to gain diversified exposure to real estate with relatively little initial capital.
Investors can achieve a broader asset selection by investing in mutual funds than they can by buying individual REITs.
Why Should You Invest in Real Estate?
Real estate offers a low-risk and high-return investment option within an investor's portfolio.
There are many reasons to invest in real estate, according to Zackson. Here are just a few:
It's a good way to diversify your portfolio and lower your risk exposure.
Real estate is an inflation hedge.
You can use leverage (borrowed money) with real estate investments but not with most other types of investments, like stocks and bonds.
Real estate is attractive when compared with more traditional sources of income return. Unlike Treasury bonds, it has a higher yield (which means you get paid more).
Real estate is an excellent investment that is traded easily.
Real estate is a stable investment that offers a steady flow of income.
Real estate has tax advantages.
In conclusion, real estate investing is a rewarding and exciting way to grow your wealth. It takes some work, but it's worth it!
If you're a first-time investor and want to get started, Zackson notes, make sure you have enough cash to cover all your expenses as you invest in real estate. From there, do as much research as you can.
Brad Zackson is a veteran in real estate development, finance and management in New York City. He started his career as a broker, becoming the exclusive broker and manager for one of the largest privately held multi-family portfolios, where he managed and supervised over 45,000 residential units.
This article does not necessarily reflect the opinions of the editors or management of EconoTimes.