Real estate presents an excellent investment opportunity for anyone who wants to build long-term wealth.
If you invest the right way, real estate can also be a significant source of passive income for you. The best part about investing in real estate is that there are a variety of properties and realty investment vehicles available.
You can pick and choose the one that is ideally suited for your budget, risk tolerance, and financial goals.
Here are five types of proven real estate investments you can make.
Residential real estate
Buying a primary resident is the most common way for a vast majority of people to invest in real estate.
If you have a reasonable credit score, you can take out a mortgage at a competitive rate, keep making your monthly payments on time, and build home ownership over time.
In the long run, if the demand for real estate in your location goes up, you could be in a position to cash in on a handsome amount of equity when you sell your home.
You could also earn a passive income by investing in a secondary home (such as a vacation home) and renting it out.
Commercial real estate
Investing in commercial real estate can help you get substantial returns, but it generally requires a significant investment on your part.
Depending on your preference and budget, you can choose to invest in office buildings, multi-family properties, industrial real estate (factories or warehouses) or retail real estate (grocery stores, clothing stores, and other stores).
It should be noted that the property management expenses associated with commercial real estate properties can be quite substantial.
At the same time, commercial real estate properties tend to have longer leases than residential properties, so you can have a steady source of recurring income for a long time.
Raw land is considerably cheaper than other kinds of real estate investment. It can be a great choice for those who are into residential or commercial real estate development.
Correlating with this, real estate development not only requires a large investment on your part, but requires you to have a keen understanding of the market. With that said, you can buy raw land and lease it out to farmers for agricultural purposes.
Real estate investment trusts, more commonly referred to as REITs, are trusts that invest in a variety of different real estate properties like single and multi family residences, office buildings, apartments, retail space, industrial space, malls, and more.
The rental income generated from these properties is divided among the investors on a monthly, quarterly, or yearly basis.
You can choose to invest in private REITs (which are privately managed) or publicly traded REITs (which are listed on the stock exchange).
One of the biggest advantages of investing in REITs is that the dividends can be quite substantial, since REITs are legally required to pay out at least 90% of their profits to their shareholders or investors.
Crowdfunded real estate investments
Real estate crowdfunding is a process wherein real estate developers raise funds for their project through crowdfunding platforms.
Individual investors can sign up with these platforms, choose a project they are interested in, and make an investment. Developers pay a share of the rental income or the proceeds from the sale of their properties to the investors who funded their project.
The best part about real estate crowdfunding is that many platforms allow you to invest as little as $1,000 and there is no effort required on your part. While there is a lock-in period associated with these projects, it can be a prudent way to earn passive income in the long term.