In the last few decades, real estate has become increasingly popular. As modern technology advanced, the investing landscape changed, too, introducing us to real estate-based ETFs, mutual funds, and REITs. Now, there are myriad ways to get involved with this lucrative asset – without breaking the bank.
It’s important to note that investing in traditional real estate is not quite like investing in the stock market.
Traditional real estate requires a much larger investment on multiple fronts. For one, you’ll likely spend a lot of time researching what you can afford and where. If you plan to flip or rent property, you’ll need to consider the costs of repairs, renovations, and maintenance. And while hiring a property manager to deal with the inevitable exploding toilet saves you time, it also cuts into your bottom line.
Then, of course, there’s the unavoidable fact that real estate requires more capital. Whereas most stocks run a few dozen to a few hundred dollars, you can easily spend hundreds of thousands of dollars on one house. And even if you only put down a few thousand on a property you intend to flip, you’re on the hook for the mortgage if the market goes belly-up.
However, there are many benefits:
Up until now, we’ve primarily assumed that investing in real estate means buying traditional property. However, modern investing has introduced new methods to diversify your portfolio without signing a deed. We’re going to discuss both types of investments here.
There are two primary ways to invest in physical real estate: buying rental properties and flipping houses.
Buying rental properties comes with the caveat of becoming a landlord. For some, collecting passive income via rent checks is the dream life. But you still have to be on call to deal with every exploding toilet and broken water heater – unless you’re willing to shell out thousands for a property manager.
Flipping houses is a whole other beast entirely. Typically, this process involves one of two strategies:
Each of these strategies comes with their own benefits and risks. It’s also possible to take on both roles at once – buying and fixing up a property in a rising market, and then selling when you believe the market has peaked. However, neither option guarantees that you’ll see returns.
Of course, modern markets have presented new options to circumvent the binary juxtaposition of investing in the stock market or real estate: real estate securities and trusts.
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