Over the centuries, real estate investing has been a very lucrative endeavor. Even non-speculating homeowners who have owned and maintained investment properties for several years have achieved double and triple-digit investment returns.
Private residence values have risen substantially, although there have been notable dips in recent history. According to a July 2022 Realtor® Magazine article, average home prices increased by nearly 49% during the past decade.
Like any investment, there are risks, and real estate is far less liquid than other assets. Therefore, research, timing, persistence, and patience are keys to real estate investing success. In addition, understanding and tracking the market for opportunities is key to being a successful real estate investor.
For investors looking for a return on their capital, however, the opportunities in real estate investments range from active, to hands-on purchasing and management, to passive investing. Deciding which avenue to pursue depends on several factors.
#1. Should I be an active or passive investor?
Begin by asking yourself, “How much time do I have to commit to investing?”
Finding and overseeing tenants, collecting rent, responding to property issues, and maintaining property takes time. However, active real estate investing can be a realistic option for those with the time, patience, and skills to handle all the details of managing properties.
For those employed elsewhere or with other commitments, passive investing is an alternative to actively managing properties. Passive real estate investing is comparable to other capital-only investment channels when using a property management company to oversee the property.
#2. Are the pressures and financial risks of active real estate investing too daunting?
Being an active real estate investor demands significant time and extensive market knowledge. Therefore, it is essential to scrutinize each facet of any active real estate opportunity before deciding to undertake those responsibilities. For example, as an active owner of long- or short-term rentals, or when flipping a property for profit, the reward potentials are significant, but so are the risks.
Always investigate if a property is rentable before buying a rental property. In some instances, the purchase price of the property plus the cost of upgrades or repairs, taxes, landscaping, and other expenses may not warrant the rent levels required to make a profit. An experienced and proven real estate agent can insightfully help in these situations.
Many active investors have realized a steady income through patience, diligence, and skill.
#3. Should I consider vacation rentals or renting out part of my home?
The market for vacation rentals through companies like Airbnb, VRBO, Vacasa, and others has exploded during the past decade. As a result, property owners in high-demand vacation areas have made substantial incomes through these agencies.
Renting a room, apartment, free-standing structure, or any owner-occupied residence is another popular investment option.
#4. Does Property Flipping Work?
Making a profit from flipping a property includes buying it at a wholesale price, fixing or renovating the property, and selling it for an appropriate profit.
Buying the right property is difficult, but knowing what is necessary to make it profitable is even more challenging. Understanding the cost of repairs and improvements is essential, as is having insight into local real estate trends.
Before starting this quest, consult a trusted, experienced real estate agent for their insight and access to real-time real estate data and trends.
During the recent real estate boom, some investors benefited from the substantial rise in market values, while others struggled to find suitable properties. Savvy investors rely on their trusted real estate agent to help find properties with the potential for being a profitable flip.
#5. What are Some Passive Real Estate Investing Options?
Passive real estate investing is the preferred option for investors with limited time or those who do not want to engage in active, hands-on management. These solutions allow the investor to reap investment returns without actively managing properties.
Some options for passive real estate investment include:
- Crowdfunding is a group of investors who pool their funds to purchase commercial properties, apartment complexes, and private homes. Professional fund managers provide detailed reports regarding the progress of the fund’s assets. As a result, investors can own multiple crowdfunded real estate investments to create a diverse portfolio of multi-family buildings, commercial real estate, or land investments.
- Real Estate Investment Trusts (REITs) work much like mutual funds, allowing individuals to invest in a broad range of properties. While some may be listed on particular exchanges and registered with the SEC, others do not trade publicly.
- Money Lending is for investors who do not have the time or desire to buy, fix, and flip a property but wish to participate in the potential profits. Lending to trustworthy and skilled individuals with the knowledge and skills necessary is usually at a higher interest rate than conventional loans, yet it can yield decent returns. The main risk is the borrower defaults, and the investment is lost.
Consult with a Proven Professional Realtor
There are many opportunities to profit from real estate investing. But, before deciding, consider consulting with an experienced real estate agent. Their insights, experience, and market knowledge can help minimize costly mistakes.