ReSET Blog
Blog · August 10, 2022 · AUTHOR: Darwin Pelea

5 Ways To Invest In The Real Estate Market

The global real estate market is estimated to be worth around $228 trillion, making it one of the most important asset classes in the world. Yet, despite this, it is often overlooked by investors. From publicly traded real estate investment trusts (REITs) to physical real estate, there are several ways to get exposure to this asset class.

With so many options available, it can be challenging to know where to start. The following article will provide a helpful overview of investing in the real estate market.

What Are REITs?

The real estate investment trust ("REIT") is a company that invests in, owns, operates, or finances real estate properties that generate income. A REIT, like mutual funds, gives ordinary Americans the chance to invest in valuable real estate, just as mutual funds do for Wall Street, banks, and hedge funds. The REITs not only provide income through dividends and total returns but also promote the growth, prosperity, and revitalization of communities.

A real estate portfolio can be invested with a stock, mutual fund, exchange-traded fund (ETF), or another investment fund, just as with other industries. However, rather than buying, managing, or financing real estate, REITs pay stockholders a share of their income. Here are some investment options in the real estate space:

1. Get Your Old Home Rented Out.

If you're looking to invest in the real estate market but don't want to be a landlord, there's good news: you can invest in real estate without owning any property. One way to do this is through a real estate investment trust or REIT. REITs are companies that own, operate, or finance income-producing real estate.

By investing in a REIT, you can get exposure to the real estate market without worrying about maintenance and tenants. Plus, if your tenants take care of everything for you, then all you have to do is collect rent checks. And thanks to low-interest rates, renting an old home may be more profitable than ever. REITs offer an excellent opportunity for investors who want to tap into the real estate market without all the hassle and responsibility of being a landlord.

Plus, unlike buying stocks, it doesn't matter whether house prices go up or down - as long as rents keep coming in, you'll see gains from your investment either way.

2. Purchase A Rental Property

A rental property is a great way to invest in the real estate market. Not only will you earn rental income, but you'll also be able to take advantage of appreciation. And, if you purchase a property in an area with high demand, you'll be able to charge a premium rent price. Plus, owning a rental property can provide you with tax breaks.

A portion of your mortgage interest and property taxes are deductible. As long as your itemized deductions exceed the standard deduction amount, you'll get this deduction which could save you money on your taxes each year. Use a strategy called trading up - Trading up involves buying properties for more than their current value so that you're left with more equity. You then reinvest that equity into another property for more profit. However, before doing this strategy, it's essential to consult a professional first.

Rental property can be a very lucrative investment if you are diligent in finding hidden gems. In addition, renting a property can be a semi-passive income if you let an experienced property management agency handle the rest.

3. Flip A Property

The process of flipping homes is the idea of purchasing homes under market value, fixing them up, and then selling them for a profit. It is both risky and rewarding for those interested in flipping homes. But, since property values are rising again, this is a good time for those who want to flip houses.

It is important to buy those bargain homes when flipping so you can focus on making the house more aesthetically appealing and selling it for profit. The ideal flip home needs only minor cosmetic repairs.

It is important to remember that flipping homes may not result in a quick sale or much profit when you decide to do so. If you flip houses, you are taking a significant risk, so you must ensure the property is in good condition and priced appropriately. On the other hand, if you're good at it, you may find flipping houses one of the best investments you've ever made.

4. Home Part-Renting

You could try renting a portion of your house as a first step if you aren't convinced you can recoup your money by purchasing a home and then selling it later. You have two choices for this. First, you can rent a spare room in your house or basement. If you are hesitant to buy your first home, you could buy a duplex and rent the other apartment.

The benefit of renting a portion of your house is that you can closely monitor your tenant. If you live in the same house as your tenant, you are less likely to be ripped off by a tenant who doesn't pay rent. If you rent a portion of your home, you can also understand what a landlord looks like without investing so much money.

5. Invest in REIT

Investing in REIT allows you to get exposure to the real estate market without directly purchasing a property. To invest in a REIT, you must buy shares of the company on an exchange. You may be required to pay taxes on dividends paid by the company, but otherwise, it's just like any other stock investment.

Depending on your goals and risk tolerance, there are three REIT types: equity, mortgage, and hybrid. Equity REITs focus on owning properties outright, while mortgage REITs provide financing for others who want to own property. A hybrid REIT mixes an equity REIT and a mortgage REIT. As the name implies, hybrid REITs combine aspects of both equity REITs and mortgage REITs, providing a diversified investment option for investors.

There are many benefits of investing in a REIT instead of buying property yourself, the most notable being diversification across geographies and sectors. Additionally, if one area falls out of favor (say commercial office space), the losses will not spread so far because they're diversified across sectors. First, however, investors should know about the potential tax ramifications associated with ownership through a REIT.

If you make money from dividends, long-term capital gains, or short-term capital gains from owning shares of a REIT, this could result in taxable events. Therefore, it is essential to consult your tax advisor before making any decisions about investing in a REIT.

Final Thought

There are several ways to invest in the real estate market through REITs. REITs offer investors the opportunity to diversify their portfolios while providing the potential for income and capital appreciation. While there are risks associated with investing in REITs, they can be an excellent way to get exposure to the real estate market. Looking for a better way to market your products and services? Sign-up for a free SetSchedule account today and start to connect and collaborate with other professionals. 

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