Why Should You Start Investing in Real Estate Today?
Real estate investments made in the right place at the right time, deliver incredibly high returns compared to other investments. Compared to common investment options like stocks, mutual funds and bonds, investing in real estate is easier to learn. It is also a stable investment and more often than not, provides better returns than any other holding in the long run.
‘Do not put all your eggs in the same basket’ is a statement repeated all over the investment industry. As an investor trying to make their money do the work, real estate is a good option to diversify one’s portfolio. Here are some key benefits of investing in real estate.
Five Reasons to Invest in Real Estate:
To guarantee an increase in net worth and wealth over some time. Millions of people have become wealthy by investing in real estate.
To receive tax benefits. You could be qualified to receive some tax benefits when investing in real estate like incentive programs, capital gains, and you can even deduct expenses.
To have an asset that almost always guarantees to give returns higher than inflation.
Real estate investments are for anyone who has sufficient capital and a heart to multiply that manifold. Studying real estate is not as complicated as studying stocks. It requires less training and technically there are no qualifications to be a real estate investor.
Real estate investments despite being a stable alternative have the potential to match the returns from stock and other investments. According to netwallet.com, the average return on investment from the stock market in the United States is 10%. While mashvisor.com claims Real Estate Investment Trusts (REIT) to have delivered an average of 11.5% returns to its investors. According to comparative data in millionacres.com, real estate investments can offer better returns than stocks as a long term holding, say over a decade or two.
Real estate is regarded by experts as one of the best sources of passive income. Make the right real estate investments to multiply the money parked idly in your bank.
Types of Real Estate Investments
Real estate investors have multiple options to reap benefits. Everything real estate has value; investors can choose their preferred type according to their expectations, comfort and calculations. The different types of real estate investments are listed below.
Owning a Property
The most basic type of real estate investment is to directly buy a property. As the owner of the property, investors will benefit from the natural appreciation in value over time. If the newly invested property is in a state like Texas where there is a rapid increase in population, combined with a strong economy and great rate of job creation, then the value is likely to appreciate at a faster rate over time. Location is the most important factor when it comes to investing in properties, and a state like Texas is ideal for Real Estate investment.
Properties to invest in can be broadly classified into three types:
Rental Properties: Owning a rental property is ideal for beginner investors with sufficient capital. The investors in rentable properties will get the double benefits of seeing their capital increase enormously with time due to appreciating Real Estate while also enjoying the cash flow offered by rental income.
Utility Properties: These are properties that can offer alternate incomes like farmlands that offer revenue from farm produce if put to proper use or even a barren plot whose value can increase with developments within the vicinity.
Flipping Houses: If one has the capital for initial investment, then flipping houses is one of the easiest ways to enhance wealth. The value of a house will increase naturally with time as the development and commercial value of the location and demand for homes increases. The value of a home can also be forcefully enhanced by investing in remodeling and repairs. This is an easy way to increase revenue and this also has good tax benefits.
The challenges of owning a property: It is always up to the landlord to maintain and manage the property. Signing rental agreements, providing bills for rents paid, overseeing the utilization of the property etc. can be unappealing to many people.
Owning a property also requires ready capital. The alternative will be to depend on bank loans with a long payback (of course the property’s rental income or utility would help in this front, yet this shall be uncomfortable for some).
Real Estate Investment Trusts
Real Estate Investment Trusts (REITs) are amongst the easiest options to invest in real estate. Many experts would normally suggest REITs for beginners in real estate, especially if they have experience in the stock market. REITs are real estate companies that own and manage a diverse portfolio of real estate. They are listed in the stock market and their shares are available like that of any other company listed. REITs require the least amount of capital investments. This is the best place to start for people who would like to test the waters before taking a plunge.
REITs are companies that own large apartment complexes, commercial buildings, medical facilities, data centres and other real estate holdings. They generate income through rent, sales, management and appreciation. An investor can buy shares in a REIT and generate income as dividends and price appreciation.
Real Estate Crowdfunding
Real estate crowdfunding is a concept that was introduced in 2012. Investing in a crowdfunding platform can bring high returns but also possess a significant risk factor. As the name suggests, Real estate crowdfunding is a platform where like-minded investors pool money to purchase, sell and manage properties. Most crowdfunding platforms are relatively new in the market and are untested in economic downturns. However, they have managed to stay afloat in the pandemic induced recession. Crowdfunding platforms connect investors to a real estate syndicate.
Real estate crowdfunding portals, even the ones that allow only accredited investors, are accessible for less capital than that of a real estate syndication firm. Crowdfunding investor relationships are temporary and change from project to project.
Real Estate Syndication
Real estate syndication firms are companies where like-minded investors can pool in their money and invest in properties which they wouldn’t have been able to afford individually. This equity-based partnership model is the best way to invest in real estate for beginners. Real estate syndication firms like the Texas-based Sahara Equity consist of experts who do a deep market study, follow development plans of the government, use expert data and techniques to ensure they choose the best properties which give incredibly high returns to all investors. Even with zero knowledge, one can partner and invest with such companies to enjoy the limitless returns which come with real estate. Investors in a syndicate are generally considered partners in a business and can have their limited say in the joint co-operation.
Which is the best Real Estate Investment for a Beginner?
It all depends on the investor.
Owning a property for rental revenue, utility or flipping can give an investor a sense of complete freedom. On the flip side, he/she will have to do all the groundwork required for the investment.
Investing in a REIT is more comfortable for investors who have successful previous experience in the stock market. Real Estate Investment Trusts depend on the overall industry atmosphere for delivering returns and that can be tricky. However, investors low on capital can start with REITs before they get into other real estate investment methods.
Real Estate Crowdfunding is attractive and can deliver good returns. In this system, the sponsor/management takes care of the background study. This is ideal for people with medium cash who want to invest in large scale real estate projects.
Investing in Real Estate Syndication firms is the best option for investors with sufficient capital. The investors become partners. Syndication firms tend to give incredible returns in the long term and can be relied upon because they only choose the best properties with the most potency for value appreciation.