When we talk about real estate, what most people think of is their home, not really an investment. But real estate is not only about owning a home or property but also about owning investments.
For many decades, people have used real estate as a viable vehicle for investment; it is considered a unique class of asset that one can use as a tool for diversifying an investment portfolio. It is also a low-volatility investment type.
Check out this site for more information on low-volatility investments: https://www.ig.ca/. In this article, we will discuss the basics of investing in real estate as a beginner, so stay with us.
Different Ways of Investing in Real Estate
There are different ways of investing and making money in this industry and it includes the following:
- Rental properties
- Flipping properties (buying a cheap piece of property, fixing it up and selling at a profit)
- REITs (these are similar to mutual funds and are securities that you buy through a brokerage firm or account).
- Online real estate investment platforms.
- Renting out part of your home or property.
This involves buying property and renting it out; you can either buy vacation apartments or residential apartments. You can also decide to do commercial property rentals; this is where you buy property and lease or rent it out for business purposes.
Bear in mind that each category of these rental properties has its peculiarities, so you must understand the ins and outs of each one before you invest your money.
There are two sides to this type of investment. Some house flippers buy an undervalued property and sell it off within 6 months without adding any value to the house.
Some others, on the other hand, buy an undervalued property and invest some money in renovating and upgrading the house or property before selling it.
This aspect of the property industry is for people who understand the market and have the capital, time, and resources to oversee renovations. It is not a recommended niche for newbies in the industry.
This is an acronym for Real Estate Investment Trusts, and it is similar to mutual funds. This is the best option for people who want a slice of the industry pie without the hassle of day-to-day operations.
All the investor needs to do is buy properties and hand them over to a real estate investment group. This firm will then handle all the nitty-gritty of the transaction while the ROI is remitted to the investor.
Just as with mutual funds for other commodities, there are pros and cons to this method of investing in the property market. Therefore, any prospective investor needs to learn more about the firm they want to work with in this regard. You, as an investor, must do your due diligence to ensure that the firm you want to work with is reputable and have integrity.
Online Real Estate Investment Platforms
This is a forum or platform that provides an opportunity for crowd funding where people pool resources to carry out a real estate project. This method affords people the opportunity to invest in a single project or have a portfolio of projects.
Additionally, this method allows an investor to invest almost anywhere in the world. However, it does not mean that there are no disadvantages to this method; one just needs to weigh the pros and cons.
Renting out Part of your Home
People who have large homes with extra space that they do not need can test the waters of the industry by renting out part of their homes.
This seems to be one of the safest ways of making money out of your home. However, you need to study the market or, better yet, work with experienced agents so as not to get into trouble in the process.
Benefits of Investing in Real Estate
Having seen the different methods of investing in this market/industry, let us look at the benefits of these types of investments in general.
Diversification of Investment Portfolio
Real estate is considered a low-volatility investment niche, which means that its correlation with other commodities or assets is sometimes low. This therefore means that adding it to your portfolio can lower overall volatility and give you a higher ROI.
Furthermore, the more hands-on and direct your investment, the higher the hedge it provides.
Hedge against Inflation
There is a positive correlation between GDP growth and demand for real estate, which makes investing in it a good hedge against inflation. While paper assets are liable to depreciate over time, real estate appears to always bounce back, even when there has been a slump in the market for whatever reasons.
Owning a property provides leverage for the owner in the event of a financial crisis. For example, a homeowner can always take out a second mortgage on their home equity to help them through a financial rough patch.
In times past, people looked forward to becoming homeowners, but now the focus is shifting from just homeownership to investment. Investing in real estate is not as volatile as investing in other commodities or markets. However, one must still do their due diligence so as not to lose money at the end of the day.