Real estate investing is a popular way to build wealth by purchasing and then reselling properties. Like stock investments, properties have an intrinsic value derived from both the raw land and improvements (building structures attached to the ground). Well-chosen real estate typically appreciates over time at a rate that far exceeds annual inflation. The most common way that people get into the real estate investment game is by buying a primary residence, which allows them to test out the market before making a larger commitment.
The next step up in terms of real estate investing is to purchase rental properties. This can be a great source of passive income and is an excellent option for those who don’t want to or can’t be hands-on with the day-to-day management of their own property. There are many avenues to finding rental properties, from working with a real estate agent to using online resources such as Redfin and Zillow. Whatever real estate strategy you choose to pursue, it’s important to understand that your returns will vary. Flipping a property will earn you differently than renting out that same property, so it’s important to know the specific risks and rewards of your chosen path.
Another common type of real estate investment is a house flipping strategy, where investors purchase properties for less than their market value and then renovate them to make them more appealing to buyers. This can be an excellent way to generate a quick profit, but it requires a significant amount of capital and the ability to act quickly on opportunities. Real estate investment groups are another option that many new investors use to help reduce their risk by sharing the cost of acquisition and renovation with other investors.
If you’re interested in a more passive investment, real estate investment trusts (REITs) are an excellent option. These are companies that own and manage multiple properties, and they pass along monthly or quarterly cash flow to shareholders. They’re an excellent choice for those who want to diversify their investment portfolio but may not have the capital to invest in physical real estate.
It’s also important for beginner investors to consider their own personal goals and investment style when choosing a real estate investing strategy. It’s easy to get overwhelmed by the number of different options available, so it’s best to choose a few strategies that work well with your current investment situation and goals and then fine-tune them as needed.
Lastly, it’s crucial to always have exit strategies in place for your real estate investments. This includes contingencies in your purchase contracts that allow you to walk away from a deal if it’s not meeting your needs. It’s also a good idea to maintain a cash reserve for repairs and maintenance on your rental properties. This will keep you afloat until you can sell the property and earn back your original investment.