Investing in real estate is a long-standing wealth-creation strategy. It can provide many benefits such as diversification, tax breaks, and equity building as well as competitive risk-adjusted returns. However, it has its own drawbacks such as insufficient liquidity, and high capital requirements. If you’re thinking about adding real estate to your portfolio you should consider your investment objectives, level of expertise and risk tolerance.
Real estate investing is either hands-on or hands-off based on the type of property you want to invest in and management style. Rental properties, for example, tend to be the most hands-on real estate investments since they have ongoing maintenance costs and vacancy costs. They also provide an income stream that is consistent and the potential to increase in value over time.
Another option is to purchase commercial properties such as shopping malls, hotels, or office buildings. This type of investment will guarantee a steady flow of cash and rent growth, as well as a hedge against inflation. However, it can be more difficult to manage than residential real estate and typically involves higher initial investments.
One last option is to invest in land that is raw which could generate an income stream that is steady through leasing the land for the construction of homes or businesses. This is a hands-off choice but there are risks, for instance, the necessity of development costs as well as the possibility of environmental issues that could affect the value of your property.
Finally, you can invest in an investment trust for real estate (REIT) which is similar to a mutual fund, but focused on a specific property portfolio. REITs are generally less hands-on and have lower initial investment costs than investing in physical property however, they don’t have the same flexibility or liquidity as direct real investment in real estate.