Different Ways of Investing in Real Estate
Investing in real estate can take many forms, from buying your own house to buying rental properties, to investing in commercial real estate. In fact there are many variations on real estate investing, with varying levels of risk.
Perhaps the least risky way of investing in real estate is buying a house to live in. Real estate does tend to increase in value, despite the setbacks in the housing market experienced from 2008-2010. But you should be investing for the long term: only rarely to markets occur where it is profitable to buy real estate to “flip” for a quick profit.
By buying your own house, you hope to eventually own free and clear a piece of property and a house. Once your mortgage is paid off, you’ll only have to worry about yearly property taxes and upkeep of the property, and you won’t have house payments or rent to worry about. With luck, during the 15 to 30 year period in which you pay off your mortgage, the property will go up in value, so that if you should sell, you would reap a healthy profit over what you initially paid for the property.
Some people invest in real estate by purchasing rental properties. They become a landlord and charge rent to tenants. In some cases, the amount of rent can cover the landlord’s mortgage payments. The landlord, however, has to be prepared to deal with repairs, and to deal with renters who may fall behind on rent. Some people who buy rental properties hire rental property management companies to manage these things for them, so that they don’t have any face-to-face interaction with the tenants.
Financial advisors often suggest that anyone interested in investing in rental properties or commercial real estate create a Limited Liability Company (LLC) and to invest in that name. That way, the liability belongs to the company and not the individual doing the investing. If you were to invest in real estate under your own name, and were sued, say, because someone hurt himself on your property, you would personally be liable for any costs above and beyond what your insurance settled for, and could result in bankruptcy.
Investing in real estate can take the form of investment in vacation housing, apartment buildings, or office buildings, to name a few. These investments allow investors to make passive income from their real estate holdings, in the form of rent.
But investing in real estate doesn’t have to mean owning properties and making passive income from them. Real Estate Investment Trusts, or REITs, are investments that can be traded like stocks. They have special tax status that exempts them from corporate real estate taxes as long as they adhere to the government’s guidelines for REITs. They are a way for you to invest in real estate without “getting your hands dirty” or having to worry about tenants calling at 3 a.m. with a burst pipe that you have to see to.
Investing in real estate can be as hands-on or hands-off as you want it to be. Over history, investing in real estate has been a good move, as real estate does tend to increase in value over time, with few exceptions.