Real estate investing has long been one of the most secure and lucrative forms of investment. Real estate is a tangible investment that you can see and feel, and forms the bedrock of any economy. People will always need real estate for living and working, and it is constantly adapting to meet the changing needs and desires of society.
Real estate investing come in a wide variety of shapes and sizes. Owning a house or a condo is a form of real estate investment just as much as owning hotels and factories. However, there are three ways for average people to invest in real estate that stand out above the rest.
A rental property is simply a property that you own and rent out for a profit. Rental properties come in all shapes and sizes, but the average person looking to invest in real estate will be buying properties in the residential and commercial markets. These properties can range from houses and apartment buildings to stores and offices.
The greatest benefit of investing in rental properties is that the property itself acts as the collateral for the bank loan needed to purchase it, which means that it does not require you to save up the entire ticket price of the property initially. However, many rental properties need to be upgraded or adapted before they become profitable for rent, which requires some initial funding, research and plain hard work to get started.
In addition, all rental properties require regular maintenance and management. While the work involved can be outsourced, this will be a regular cost that is incurred from owning the property and maintaining rental contracts.
Real Estate Investment Trusts (REITs)
REITs are investment vehicles that buy large amounts of property and then rent or lease the properties to gain a return on their investment. REITs will also sell properties for a profit (or loss), but their main purpose is to generate rental income, and not speculative profits. REITs offer shares for purchase just like a company does, and you can purchase these shares to gain a slice of ownership over the REIT and a right to any profits that are distributed as dividends. This also makes it much easier to enter and exit your investments, as many REITs have their shares listed on exchanges just like stocks.
The advantage of owning shares in REITs is that you can invest in the stability of real estate without the effort and risking of owning actual properties yourself. REITs are professionally managed, and most of them focus on certain segments of the property market, which allows you to choose the best REITs for your needs.
Moreover, because REITs own a large number of different properties, they have a low exposure to downturns in specific property markets or properties.
Property speculation involves the purchase and resale of a property in a relatively short period of time. The purpose is to quickly resell the property at a higher price instead of holding it for an extended period to gain the rental income, though this can be an added benefit depending on how long you hold the property.
Property speculation is more complicated than owning rental properties. It is more difficult to identify properties that are likely to increase in price over a short period than it is to find properties that offer solid rental income over the long term. However, there are many properties where a relatively small investment in repairing, upgrading or altering the property can quickly offer a significant return on the money, time and effort invested.
The most common form of property speculation is in housing. Housing is ideal because prices generally trend upward, and small improvements to a house can substantially increase the value of the property. That said, the same basic principles hold with all property types, and people speculate successfully on every kind of property.