This guide outlines the 7 key types of real estate investment that are proven to win in almost any market.
Regarding investments, the most common types people think about are stocks and bonds. This is no surprise because these investments get a lot of attention in the news. However, you can consider other types of investments beyond stocks and bonds.
Real estate investment is one class that tends to be overlooked by many investors who instead focus on stocks and bonds.
7 top types of real estate investment
Below is a discussion of the different types of real estate investment proven to beat the market and increase your wealth.
REITs
Real estate investment trusts (REITs) are a way for investors to access real estate without having to buy a property directly. These are publicly traded companies that invest primarily in real estate.
So they own and operate income-producing real estate assets. They own commercial properties, such as shopping malls and office buildings. They can also own residential properties.
The best part about investing in REITs is that they provide instant diversification across many properties. You can invest in a REIT by buying shares in the company or purchasing an ETF (exchange-traded fund) that tracks the stock.
As a bonus, these types of real estate investment often pay monthly dividends that can help supplement your retirement income or provide a steady income during your working years.
Most REITs pay out 90% or more of their annual profits to shareholders through dividends — typically between 4% and 8%. The dividends are taxable but usually exempt from state income taxes.
If you invest $1,000 into a REIT fund and hold it for ten years, you could earn over $8,000 from those dividends. That makes them a good choice for types of real estate investment in high-tax states such as New York and California who need income but don’t want to pay high state taxes.
Fix and Flip Investments
Fix and flip types of real estate investment are investors’ most commonly used real estate strategies. The premise behind this investment is simple, find a property that needs work, fix it up, then sell it for a profit.
The best part about fix and flip is that you don’t have to be a contractor or even know anything about construction to make money with this type of investment. You need to be able to find these deals, fix them up, and sell them for more than what you spent on them in the first place.
Fix and Hold Real Estate Investment
Fix and hold real estate investment requires a significant amount of time and money upfront but offer the potential for long-term returns. This type of investment is best suited for people with enough money to take on the risk of fixing a property, such as paying contractors, purchasing supplies, and making repairs over time.
The most significant advantage of fixed and hold real estate investment is that it provides stable returns over time while still offering opportunities for appreciation. For example, if you buy a home for $200,000 and spend $30,000 on renovations that add $50,000 worth of value to the property (not including any profit from selling), then after you sell, it will be worth $250,000. This would result in a $20,000 profit for your initial investment plus interest earned on your money during that period if you had it in a savings account or CD at the bank.
Long-term Buy and Hold Real Estate Investment
Long-term buy-and-hold real estate investments are typically held for at least five years, but some people keep them for decades.
Many investors use this strategy because it allows them to ride out downturns in the market while still earning income from the rent they collect each month on the property they own.
It also keeps their money working for them while they cannot put it into other investments like stocks or mutual funds due to capital gains taxes on short-term capital gains, which are taxed at ordinary income rates.
Wholesaling Real Estate Investments
This is a fast-paced way to make money by buying wholesale properties and then selling them at retail prices. It’s not for everyone, but it can be profitable if you know what you’re doing. It requires you to have enough cash on hand to buy homes and pay closing costs in advance of selling them.
The seller will give you a contract with an agreed-upon price they’re willing to sell their property. You’ll then try to find buyers willing to pay more than this amount when they close on the property. Your profit margin or markup rate is the difference between what you paid for the home and what you sold it for.
Crowdfunding Real Estate Investments
Crowdfunding is a relatively new concept in real estate investing. It’s a way for people to pool their money to purchase properties that would be too expensive for any single investor to buy on their own.
There are two types of crowdfunding: equity and debt. Equity crowdfunding involves selling ownership of property and sharing the profits with investors. Debt crowdfunding involves lending money to an individual or company and being repaid with interest at a set rate over time.
Regarding crowdfunding, there are pros and cons for both types of investments. Equity investments offer more potential for profits but also have higher risks because you may not get your money back if things go wrong with the acquisition.
Debt investments are safer because you’re only risking the principal amount you’ve invested (i.e., your interest). Still, they don’t offer as much potential for profits or growth as equity investments do when everything goes right.
If you want to know more about crowdfunding real estate investments, you can check out cash flow portal for information.
Private Lending
Private lending is a real estate investment that has recently gained traction. It works like this: You invest in a loan made by someone else, usually a private lender or an institutional investor, who then pays you interest on your investment.
You can do this through a platform connecting investors with private lenders seeking funding. The loans are typically short-term and range from $5,000 to $50,000. The interest rate varies based on the borrower’s creditworthiness and the loan’s purpose (home purchase or refinance).
The appeal of private lending is that it offers investors more flexibility than traditional investments such as stocks and bonds, along with higher interest rates than CDs and money market accounts.
And because peer-to-peer platforms vet the borrowers they accept and provide information about them upfront, they’ve generally had fewer defaults than other types of investments.
Final thoughts
To some people, real estate investment means buying a home to live in. To others, it’s buying a house to make money by renting it out or flipping it for a profit. Some investors buy rental properties and manage them themselves; others hire property managers to do that for them.
Investing in real estate means buying some people’s apartment buildings or office buildings. There are also many other ways to invest in real estate besides buying a house or building.
You can do this by investing in private equity funds in large commercial properties to REITs that offer investors exposure to specific sectors such as residential or commercial property or even single-family homes. The type of real estate you choose to invest in will significantly impact the potential return on your investment.
Understanding the risks involved with each type of investment is crucial before you put your money down. There is no “best” way to invest in real estate, but you can make a choice that is right for you.
