Ways to Invest in Real Estate
One of the advantages of investing in real estate is the sheer variety available to you. There are multiple ways to invest in real estate, and there is no definite amount of money required. The same can be said for the time commitment. But despite the sheer number of ways to invest in real estate, they all belong to one of two major subcategories: passive and active.
Passive and Active Ways to Invest in Real Estate
The different ways of investing that fall under active and passive can vary in their mechanics and potential, but they are mainly distinguished based on the amount of effort needed – it’s either intense high-effort or low-effort with a hands-off approach.
Active Ways to Invest in Real Estate
This type of investing relies on a deep personal knowledge of the industry. It also requires the person to be committed, because it hinges on a more hands-on approach. Alternatively, investors with resources to spare can choose to delegate responsibilities to trusted subordinates. Some of the examples that fall into this category are:
- House-Flipping – this is when an investor buys a property, then improves the property to increase its market value, then sells it for a higher price in order to generate profit.
- Rental Properties – the first part of rental properties is the same as house-flipping, where the investor purchases a property and improves it. But instead of reselling, the house is instead rented out. It has a smaller initial profit, but it is long-term and sustainable.
- Airbnb – this is a company that allows homeowners to rent their homes out on a nightly basis for people who want an alternative to hotels. This is similar in principle to carpooling services like Uber, but applied to houses.
Passive Ways to Invest in Real Estate
This type of investing is more hands-off, and ideal for property owners who don’t have much time to commit to their properties. These include:
- Private equity fund – investors pool their money in order to invest together in a single fund.
- Opportunity funds – this is similar to private equity funds, but instead of a single fund, the investors pool their money towards investing in tracts of low-income communities called Opportunity Homes.
- REITs – this stands for “Real Estate Investment Trust,” which is a company that makes equity investments in commercial real estate.
With the number and variety of ways to invest in real estate, there is no reason why an investor should be scared. The industry has a track record for strong performance, and offers significant returns. All that is needed is to find the right ways that will fit your needs and capabilities.