Real estate investing can be an excellent way to build wealth. Additionally, real estate investment comes with many tax advantages including being able to deduct certain expenses related to owning real estate such as mortgage interest payments and taxes.
There are many ways to invest in real estate. These include direct investments, real estate funds, and REITs. But before making your selections, make sure you fully comprehend all options` advantages and disadvantages.
1. Real Estate Investment Trusts (REITs)
Real estate investment is a great way to diversify your investments, create passive income streams, and build long-term growth. But like any other investment it comes with risks.
It is important to understand your level of risk tolerance before making any decisions. Our SmartVestor program connects you with experts who can help make the right decision based on your unique circumstances.
REITs (real estate investment trusts) are public companies that invest in various properties, such as commercial, residential, retail and other forms of real estate. They are traded on stock exchanges, and can be purchased and sold by brokers or through tax-sheltered accounts such as an IRA.
Investors are attracted to REITs because they offer competitive returns, high dividend yields, and long-term capital growth. They also reduce portfolio risk by increasing returns. Furthermore, their correlation to stocks and bonds tends to decrease volatility considerably – another attractive benefit of REIT investments for portfolio diversification.
2. Real Estate Investment Groups (REIGs)
Real Estate Investment Groups (REIGs) provide individual investors with a way to pool resources and expertise to acquire and manage properties that generate an income stream. REIGs use a variety of real estate investment strategies, such as fix-and-flip, rehabbing, renting out properties, buying commercial real estate or issuing mortgages notes, to find income producing properties.
REIGs are a great way to diversify and create real estate businesses. But it`s important to do your research before investing money and time in an REIG.
Consider whether the group`s investment strategy focuses on quick returns to build capital quickly or long-term passive income through holding real estate for five years or longer, and ensure members` risk tolerance matches your own.
Due diligence is required regarding the REIG assets, its legal contract and who oversees its activities. You can do this by using your own resources, such as background checks and speaking with current or past members.
3. Real Estate Funds
Real Estate Funds are a great way to invest without having to manage or own property yourself. The sponsor of your fund has conducted extensive research and can offer you access to a variety of investment properties.
Funds provide you with another means to diversify and reduce risk in your portfolio, offering both open-end and closed-end investment options to suit any time horizon or preference.
Most funds offer low-minimum investments and easy investing, making real estate investment accessible to everyone. Most of them are listed on public markets and can be purchased into standard retirement accounts.
Many funds invest across a broad spectrum of property types and REITs, providing investors exposure to every facet of commercial real estate investing. The funds can be conservative, such as low-leverage loan on trophy assets that are similar to high credit bonds or riskier investment strategies, like development projects with returns comparable to VC fund investments or small cap equity.
4. Direct Real Estate Investment
Direct real estate investments can be an excellent way to build wealth. Tax benefits, increased cash flow and capital appreciation are all possible with direct real estate investments.
Commercial real estate can be purchased directly, but it can cost a lot of money up front. However, the income and appreciation potential is high.
Direct property investing may be ideal if you prefer hands-on management of your investments and want more control. It also offers tax advantages and can increase the value of your portfolio.
Direct real estate investment is also seen as an inflation hedge. When prices of goods and service increase, rents and home values tend to increase in line.