Over the centuries, real estate investing has been a very lucrative endeavor. Even non-speculating homeowners who have owned and maintained investment properties for several years have achieved double and triple-digit investment returns.
Private residence values have risen substantially, although there have been notable dips in recent history. According to a July 2022 article in Realtor® Magazine, average home prices increased by nearly 49% during the past decade.
Like any investment, there are risks. Therefore, research, timing, persistence, and patience are keys to real estate investing success.
The opportunities in real estate investments range from active, to hands-on purchasing and management, to passive investing. Deciding which avenue to pursue depends on several factors.
#1 Should I be an active or passive investor?
Begin by asking yourself, “How much time do I have to commit to investing?”
Finding and overseeing tenants, collecting rent, responding to property issues, and maintaining property takes time. However, active real estate investing can be a realistic option for those with the time, patience, and skills to handle all the details of managing properties.
For those employed elsewhere or with other commitments, passive investing is an alternative to actively managing properties. Passive real estate investing is comparable to other capital-only investment channels when using a property management company to oversee the property.
#2 Are the pressures and financial risks of active real estate investing too daunting?
Being an active real estate investor demands significant time and extensive market knowledge. For example, as an active owner of long- or short-term rentals, or when flipping a property for profit, the reward potentials are significant, but so are the risks.
In some instances, the purchase price of the property plus the cost of upgrades or repairs, taxes, landscaping, and other expenses may not warrant the rent levels required to make a profit. An experienced and proven real estate agent can insightfully help in these situations.
#3 Should I consider vacation rentals or renting out part of my home?
The market for vacation rentals through companies like Airbnb, VRBO, Vacasa, and others has exploded during the past decade. As a result, property owners in high-demand vacation areas have made substantial incomes through these agencies.
#4 Does Property Flipping Work?
Making a profit from flipping a property includes buying it wholesale, fixing or renovating the property, and selling it for a reasonable profit.
Buying the right property is difficult, but knowing what is necessary to make it profitable is even more challenging. Understanding the cost of repairs and improvements is essential, as is having insight into local real estate trends. Savvy investors rely on their trusted real estate agent to help find properties with the potential for being a profitable flip.
#5 What are Some Passive Real Estate Investing Options?
Passive real estate investing is the preferred option for investors with limited time or those who do not want to engage in active, hands-on management. Some options for passive real estate investment include:
- Crowdfunding is a group of investors who pool their funds to purchase commercial properties, apartment complexes, and private homes. Professional fund managers provide detailed reports regarding the progress of the fund’s assets. As a result, investors can own multiple crowdfunded real estate investments.
- Real Estate Investment Trusts (REITs) work much like mutual funds, allowing individuals to invest in a broad range of properties. While some may be listed on particular exchanges and registered with the SEC, others do not trade publicly.
- Money Lending is for investors who do not have the time or desire to buy, fix, and flip a property but wish to participate in the potential profits. Lending to trustworthy and skilled individuals with the knowledge and skills necessary is usually at a higher interest rate than conventional loans, yet it can yield decent returns.
Consult with a Proven Professional Realtor
There are many opportunities to profit from real estate investing. But, before deciding, consider consulting with an experienced real estate agent. Their insights, experience, and market knowledge can help minimize costly mistakes.