Real estate investment opportunities are broad and can differ significantly, offering both big risks and rewards to investors.
Real estate investment opportunities are the butt of so many jokes. That may not be unfounded. We’ve all heard a phrase, “If you believe that, I’ve got a bridge to sell you.” It’s meant to point out how gullible people can be. In fact, it’s based on the true story of a con man in New York who “sold” the Brooklyn Bridge to tourists.
Fortunately, most Realtors are honest people, and real estate can be a good investment if the details are right. Some kinds of real estate offer more significant risks and rewards, while others can provide a cheaper place to stay among tenants.
Without question, there are some real estate investment opportunities that are worth considering, and others worth avoiding.
3 Valuable Real Estate Investment Opportunities
1. Real Estate Investment Trusts (REITs): Investors interested in the real estate market can turn to REITs as a way to get into the market without being an active landlord. These funds are broken up into different categories, including equities and mortgages. There are also hybrid REITs that include both. REITs can focus on both residential and commercial properties as well. REITs have the potential for high returns with much less attention and effort than buying a rental property and acting as the landlord or property manager.
2. Multi-family homes: A multi-family home can benefit the owner if they are living in one of the units themselves. Getting a mortgage on the home and then renting out the unused units can lead to significantly lower payments for the homeowner. This opportunity is not for everyone, as not every investor will want to live alongside their tenants, but for those who do, they can save money in the process.
3. Flipping houses: For savvy investors with renovation skills, flipping houses can make sense. The goal is to find great deals on places that can be made even better with minimal effort. These investments are best for people who can make repairs to the house before attempting to sell it. There is a lot of risk in flipping houses, as it can take a lot of time to sell a home, and the profit may not always be significant. However, for those with a passion for working on houses in a popular housing market, there can be a lot of rewards as well.
3 Real Estate Opportunities that Come with Greater Risk and Effort
Not all real estate investment opportunities are created equal. Some provide a greater potential for returns than others. It’s worth knowing both the best real estate investment opportunities as well as the opportunities worth avoiding. Here is a look at some of the real estate investment opportunities that can be harder to generate positive returns from.
1. Timeshares: Some investors consider timeshares if they are based in an area where they like to visit and spend time. The problem with timeshares is that they frequently resell for much less than the initial sales price, and transaction costs can be high.
Timeshares are also a commitment that may end up going against your personal desires. What happens if you buy a timeshare and, after a couple of years, are bored with the area? Of course, you can try to sell your timeshare, but the depreciation of it will likely lead to a loss.
2. A second home: Buying a second home is not necessarily a bad idea if you have the money to do so and want to do it as a lifestyle decision. However, setting up the second home as an investment property might be a much more challenging proposition to make profitable. Being a landlord requires time, attention, and effort. There are also fees that many forget about. There are insurance and maintenance requirements. There may be other types of housing costs if the property is a condominium or part of an association. And there’s also property tax to consider.
Furthermore, what happens if you have a tenant that doesn’t pay on time or turns out to be a nuisance? That scenario can lead to stress and difficulties, and may even become a legal issue. Ultimately, there are so many variables that can make buying a second home as an investment property a costly idea.
3. REITs based in small markets: REITs can be an excellent real estate investment if you choose the right ones. A REIT in a small town is rarely at the top of this list. Small markets have less room for error with investment properties. If the population decreases due to a failing job market or environmental concerns, it will be hard to fill the rental properties adequately.
What methods for investing in real estate do you feel drawn to?
Nancy Zambell, Chief Analyst of the Financial Freedom Federation, has spent more than 30 years helping investors navigate the minefields of the financial industry. Nancy's book, Make Money Buying & Selling Stocks is an introduction for new investors and a reminder for experienced investors on how to profit in the stock market.Learn More