Everyone knows the quote from “Gone with the Wind” in which Scarlett points out that land is the only thing that matters. Many investors still feel that way and make real estate an important and long-term part of their portfolio. Is it right for you? Below is an introduction to real estate investing, outlining three of the most popular options.
Here are several ways to use real estate as an investment.
Being a landlord
This is especially feasible if you have do-it-yourself renovation skills and the patience to deal with tenants. You may need substantial capital for purchases and to finance up-front maintenance costs and have enough money to cover vacant months. In return, you’ll get a regular income that includes tax-deductible expenses. Also, if you invest wisely, your property may increase in value substantially.
However, keep in mind that this is an active investment. You may have to deal with difficult tenants, repairs and turnover. Make sure you’re up for this, or at least that your profit margins allow you to hire a property manager or management company to do the heavy lifting.
Working with a real estate investment group
This is a way to invest in real estate without the work of becoming a landlord. A company — the REIG — may buy residential real estate, for example, and then let investors buy into the group. The REIG handles all the maintenance and leasing work. Since the investments are pooled, you could make money even if the particular unit you bought is vacant for a period. Although this system minimizes risks, there are fees, and investors need to perform due diligence on the REIG management.
You may be able to get into a REIG for as little as $5,000, but some will require a substantially larger investment.
Investing in a real estate investment trust
This is a great option for those looking for portfolio exposure to real estate who don’t want to get their hands dirty. You can also get into the REIT market with a few hundred dollars and add more later.
REITs basically are companies that buy income-producing properties. They are not that different from many other securities — all you need to get started with one is capital. But REITs have some twists that make them especially attractive: REITs must pay 90% of their taxable income as dividends, and by meeting this goal, they avoid a corporate income tax. The dividend rule can make a REIT a good source of income in retirement. You can also invest in REIT mutual funds that spread the risk by investing in multiple REITs.
Real estate investments can add diversification to your portfolio. Getting into the market can be as easy as buying a mutual fund or as complex as investing directly. You can even rent out a room in your house if local rules allow it! But whatever you do, be sure to get professional advice and consider not only your financial situation but the level of your time and energy commitment.
You can count on Ericson, Scalise & Mangan, PC to provide you with sound guidance and experience in these uncertain times. For assistance with your legal needs, please contact us today at (860) 229-0369, or email us at firstname.lastname@example.org.