Investing in Real Estate: 4 Options For Beginners to Consider
When most people picture types of real estate investment, they immediately pull up images of the cute single-family home or a well-tended apartment building. True, these are excellent ways to invest your money in a relatively stable market that always recovers from adversity and ultimately matures over time. But that's not the only way to invest your money wisely. In fact, there exists a multitude of real estate investments that you may not have considered. Let's take a look at some of the more common types of real estate investments.
Real Estate Investment Trusts
REITs (Real Estate Investment Trusts) have been around for a while. They rest on a simple concept: companies that either finance or outright own properties to deliver profits to investors. Using investor money, companies continue to buy up and manage more properties over time, giving back as earnings become available. This can come in the form of dividends or long-term appreciation of properties that, once sold, net significant gains.
One of the most underutilized types of real estate for smaller investors, raw land is just what it sounds like: land that hasn't been developed in any way. Raw land appreciates, often quickly. As more land becomes developed, less raw land remains, making it more valuable. Simple supply and demand mean this is often one of the best ways to turn a profit in only a few years. You can either sell it off in the original parcel or, depending on the plot, break it up and further increase your gains.
Commercial and Mixed-Use Real Estate
This is usually the most common investment type beyond single- and multi-family homes. Commercial and mixed-use real estate take a variety of forms, including:
- Purely commercial buildings, such as traditional or strip malls
- Buildings or skyscrapers devoted to companies and offices
- Mixed-use buildings, usually with shops on the ground floor and living above
- Boutique buildings in bustling downtown areas
- Individual shops
Whichever approach you take, commercial and mixed-use buildings are often a great bet. They appreciate as the cost of living rises in the city or town in which they're located.
Crowdfunded Real Estate
If you are interested in investing in real estate but don't have the money to purchase a single-family home or multi-family unit, you're not out of the game. Crowdfunded investment opportunities exist, in which two or more people pool their money to purchase properties. Note this is different than a partnership, which is a legal entity. In crowdfunded investments, people typically sign up on platforms that raise the money and purchase the property. After that, either an organization or designated individual will oversee its management, distribute any earnings over time, or steward the investment until it matures.
Protect Yourself from Lawsuits or Adverse Consequences
No matter how you invest, if you're serious about protecting yourself and securing your assets, it's best to take an official approach. Forming an LLC (limited liability company) is the easiest way to do this. There are two main benefits of doing so:
- You can purchase insurance through it to deal with lawsuits or damages.
- If you get sued, only your business can lose money. While your LLC might lose it all and fold, your personal assets are protected. No one can take those from you.
If you're looking to dive into the real estate investment market, be sure to research where the best investment locations in Florida are, how to get the best ROI for your dollar when making improvements, and how capital gains might affect you in the future.