Investing in real estate is recognized as potentially one of the most successful paths toward wealth accumulation. No investment is guaranteed, and even real estate can lose value, but rental properties may offer both appreciation and passive income for the investor. As you prepare to enter the investment property arena or expand your interests, consider some options.
What investment sector suits you?
One sector to consider is residential real estate. It tends to be the most recognizable form of real estate, can have lower points of entry, and is potentially more liquid than other real estate investments. One could start by purchasing a single-family home and renting it out, or buying a duplex, living in one unit, and renting out the other.
You may decide that you are comfortable with the residential sector. It offers plenty of options for potential growth. You can stick with single family homes, building a collection of rentals. Or you can transition into multifamily housing, which offers tremendous variety in size, price range, and opportunity. Multifamily housing ranges from small complexes with few amenities to huge communities offering everything from playgrounds to clubhouses and cooking lessons. The multifamily sector also includes specialties like student housing and senior living.
Commercial Real Estate Sectors
Technically, any multifamily housing over the size of a fourplex is considered commercial real estate. Still, some may think of commercial properties like retail, office, industrial, medical, hotel/hospitality, and even farmland. Retail includes strip malls, grocery, malls, and free-standing stores like pharmacy chains. Industrial includes warehouses, research facilities, and distribution centers.
Some investors may prefer the commercial sector due to the lower level of involvement required with tenants. There is a professional property manager in many cases, so the owner is rarely directly active in the day-to-day activities. Even without a property manager, leases tend to be longer, and tenants can be more stable with these properties than with residential assets.
Are fractional investments suitable for me?
If you are an investor seeking a hands-off approach to real estate investing, you may want to consider a REIT or Real Estate Investment Trust. A REIT is a company that invests in real estate and related assets, which allows investors to own shares as they would buy stock in another type of company. REITs have some potential advantages for investors, one of which is that they are “pass-through” companies. That means that the company does not pay taxes at the corporate level (as long as they meet specific requirements like having 75% of its assets in real estate and distributing 90% of its income to shareholders).
There are both public and private REITs, traded and non-traded, and those that own property and others that make money from real estate-related debt like mortgages. Some are specialized in residential or other sectors, while others invest across the commercial property spectrum. Buying shares in a REIT can offer the individual investor a way to own more extensive, more expensive property than they would afford individually.