Let’s be real about real estate.
You probably know someone that has invested in real estate, and if you’re curious about it yourself, we’re here to help you learn a bit more. There are numerous ways to invest in real estate, all of which are distinct in their own ways.
When we’re talking about investing in real estate, we’re talking about real estate that is purchased as an income-generating investment. This does not include the house you bought to live in, because you pay money to live there and don’t make any. Investment real estate can include all kinds of things like rental houses and duplexes, apartment buildings, shopping centers, office and industrial buildings, self-storage facilities, timberland, farmland, the list goes on.
Real estate can and should be a part of your investment portfolio and financial plan. Let’s walk through the pros and cons of real estate and the ways you can start investing.
Pros:
- Dependable, stable income each month and year
- Growth in real estate values is usually more stable than the stock market and keeps pace well with inflation
- The income is often “passive” (meaning it’s not something you need to be actively working on all the time)
- Real estate values are not correlated to the stock market, meaning the stock market might go up and down but real estate values might not change
Cons:
- Typically high up-front cost to invest
- Can run into income issues if tenants or renters don’t pay rent on time
- Your investment is locked up until you sell the property, so it’s very difficult to get your money out of the investment when you need it
- Rising interest rates may make real estate loans more expensive
If real estate investment sounds appealing, here’s a few ideas on how you can start investing.
Crowdfunded real estate – A common and very accessible way to invest in real estate nowadays, one which we highly recommend if the options below are not feasible for you. The minimum investment amount is usually very low, as low as $25! Crowdfunds work by pooling large amounts of everyday investors’ money together and buying properties like apartment buildings, shopping centers, and office buildings. It’s a great way to get access to real estate investment without putting a lot of money at risk.
Buy investment real estate yourself – A more expensive and riskier way to invest in real estate, but the cash returns and growth in value can be much higher than crowdfunds (remember, more risk = more reward). If you don’t have a lot of money to put down when purchasing a property, this route may not be best for you. Be sure you educate yourself and learn the ropes before you dive straight into real estate ownership.
Partner up and buy – By partnering up with others, you can reduce the amount you’ll need to invest to buy a property… though that also means your share of the income and property value will probably be lower. But this is a good way to spread out the risk with your partners. This avenue is particularly beneficial if you partner with someone who has prior real estate investing experience and knows what the heck they’re doing.
This should pique your interest and get you excited about investing in real estate. We recommend starting with a crowdfund to test the waters. You’ll find that real estate is a vital part of maintaining a solid investment portfolio, and we’re here to help you make that happen!
For lots more on how to crush the personal finance game and find early retirement, make Firreo your financial advisor. We’ll help you out of your job and on your way to financial freedom!