Many people find investing a tricky topic. If you have reached a place in your life where you have a little extra money, the choices of what to do with it can seem overwhelming.
There are stocks, bonds, retirement accounts and, of course, real estate.
One of the reasons that real estate has remained one of the most popular choices for building wealth is because of its steady and dependable nature. If done correctly, with plenty of research and careful planning, investing in real estate can build a great deal of wealth over time.
Or, as writer Mark Twain put it: “Buy land, they’re not making it anymore.”
The Advantages of Real Estate Investment
There are many ways to invest any extra money you have outside your monthly expenses. You can buy stocks, bonds or certificates of deposit, for example. You can put the money in a tax-deferred 401k and use it to buy into a mutual fund. Or you can simply place it in a savings account.
However, real estate investment provides benefits that are not always available from other types of investments. They include:
- Cash flow. If you own a rental property, you collect payments every month that provides cash directly to you
- Tax benefits. Unlike small business profits, real estate income is not subject to the small business tax.
- Paying the Mortgage. If you buy a property, rent it out and set an appropriate monthly rental price, the rent payments cover your mortgage. That means you grow equity in the property without paying for it. Also, once the mortgage is paid, rental income becomes pure profit (minus maintenance cost).
- As has been seen in Tampa Bay and Florida the past few years, real estate prices can increase rapidly. While dips do occur, over time the value of real estate typically grows.
Those represent just some of the advantages of investing in real estate. There’s a reason that real estate remains a primary method for wealthy people to accumulate even more wealth.
Some Ways to Start
There are many different ways to get into real estate investing. However, for those looking to enter into this world for the first time, the following three represent some of the simplest ways of doing so.
This is the typical way most people invest in real estate. As mentioned above, buying a residential or commercial property and then renting it out allows you the grow equity in a property with the mortgage covered by the renters. The usual approach is to charge a rent that covers the mortgage and maintenance costs. The challenge here is finding a tenant – otherwise you are stuck paying the note yourself – or having to deal with a bad tenant who damages a property.
Real Estate Investment Groups
You know how a mutual fund allows you to pool your money with other people, distributing your money across many individual stocks? A real estate investment group is similar, allowing you to join a group in buying a property. For example, a company builds a condo building, and many different people buy into the building, perhaps owning a few units each. However, the company handles all the responsibilities of being the landlord. The key here is doing the research to ensure the company handling the project is solid.
Real Estate Investment Trust
Want to get even farther removed from being a landlord but still reap the rewards of real estate investment? Then consider buying share of a Real Estate Investment Trust (REIT). Companies use the money that investors put into the REIT to buy and operate income properties. You can purchase a share of a REIT on any of the major stock exchanges. They are required by law to pay out 90 percent of profits in the form of dividends, so investors see a steady flow of income. And unlike an actual property, you can cash out at any time.
There are just some of the way to get into real estate investment – other than buying and living in your own home, of course, which also is a form of investment. If you are interested in getting into real estate, research and find the method that works best for you.