Where to invest your hard-earned dollars is serious business. Before making any decisions about where to put your money, you should analyze the different investment vehicles available to you and determine where you are the most comfortable. For most people, the comfort comes from having your eggs in several different baskets . . . investing in the various markets and real estate.
Before we talk about the most reliably profitable real estate investments, lets clear something up. When you purchase your primary residence, that is not real estate investing. You should consider your primary home purchase as an investment in your family, happiness, and well-being.
The real estate investments we are going to touch on in this post are (1) residential multi-family units, (2) commercial multi-unit office space, and (3) real estate investment funds.
Of course, there are many things to understand and think through before making your first real estate investment. You will need to decide in what geographic area you will invest, what types of properties you are most comfortable with, how you will manage the properties, and where you will get the money. Then you will need to put the time in to find the right investments and have the financing and management all lined up.
The following types of properties have shown over time to be among the most reliably profitable real estate investments. Learn more about why you should invest in commercial real estate at Entrepreneur: 8 Ways Real Estate Is Your Smartest Investment.
Residential multi-family units - A multi-family building can be anything from a simple duplex with a shared wall to a full-on multi-story apartment complex complete with parking garage and onsite amenities. Many first-time real estate investors start with a small 2-4 unit residential property. They may decide to live in one of the units and have the income from the other units pay for the costs of the building, and perhaps make some additional income and profit. Often this arrangement allows the investor to save money toward the next real estate purchase. If there is also equity in the property, then it's possible to use that first property to leverage the next purchase.
The key here is that you have multiple potential income streams from a single piece of rental property. As you acquire more properties, the income can become significant and provide you with long-term financial security.
Commercial multi-unit office space - Investing in commercial multi-unit office space generally takes much less of your time and energy than residential units. Instead of renting to individuals, you will be renting to small businesses, partnerships and corporations. You may earn less per unit on commercial properties because of your larger investment and loans, but you also will not have to spend money for repairs and maintenance like with residential units. You can construct your leases so that the tenant is responsible for much of the maintenance.
It takes more of an investment of equity and cash to get into a multi-unit office space, but the payoff can be significant in the long run.
Real estate funds - Investing in residential and commercial multi-unit projects will take a considerable amount of your time and resources, so it is not a decision to take lightly. If you don't have the time and energy, or tolerance, to devote to being a landlord, you can still acquire real estate investments by participating in real estate funds.
Real estate funds work much like mutual funds, using trusts or crowd funding to help a group of real estate investors acquire an interest in residential or commercial property. Investing in a real estate fund will allow you to add real estate to your investment portfolio without the headaches that can come from being a landlord and dealing with day-to-day management of properties.
Here are a few kinds of real estate funds that may be good options for you:
REITs, or Real Estate Investment Trusts, offer hands-off investing with dependable dividend payouts at 90 percent of the fund's taxable income. Learn more about investing in REITs at Investopedia.
P2P, Peer to Peer Lending, is a newer method of debt financing that allows people to borrow and lend money without a financial institution using crowd funding for lending. Investing in a P2P gets you into the real estate investment market for a low initial investment and a potentially high return. Learn more about investing in a P2P at Forbes.
Dividend Aristocrat Stocks pay increasingly greater dividends from one year to the next. Learn about dividend aristocrat stocks at Kiplinger.
Index funds are mutual funds that are tied to the real estate market index. Learn more at Forbes.
Once you educate yourself about the different kinds of real estate investments, and decide whether you are willing to put the time, money and energy into acquiring and managing your own properties, you can decide where to start. With all the options available, you are likely to find a real estate investing entry point that works for your budget and goals. Wherever you decide to begin, be sure to do your research and plan carefully to operate from a cash surplus.
Always discuss your goals with your financial planner and/or accountant before making any kind of significant investment. Their guidance will be invaluable. We are also here to help you find properties that fit your investment portfolio. We have over 200 professional real estate brokers, many who specialize in multi-family investment and commercial real estate investment properties. Contact us to be connected to a real estate professional who will make achieving your goals a top priority.