Are you interested in benefiting from the real estate market? Planning for retirement is challenging when it comes to deciding which investments are the best ones. Now, you have several different ways to invest in real estate, and they don’t always mean buying a house and selling it or becoming a landlord. However, if you want to add real estate to your portfolio, but you do not want to take a hands-on approach, there are still some ways that you can add it and enjoy the benefits. Here are the four most common ways to become involved in real estate.
Rental properties are the most common way to invest in real estate. This means purchasing a piece of property and then renting out its use to others. Most people are familiar with the residential rental real estate market, but you can also purchase a piece of commercial property and rent it to businesses. There are advantages and disadvantages to both options.
One of the risks is that you may not be able to find renters. Also, you must consider whether your costs will go up in the future and whether the rental market will be able to bear these risks. You also need to consider any future repairs that might be required. Finally, it is essential to look at the economic situation and real estate market in the local area where you plan to buy. There is always a possibility that your properties will not gain value, but rental properties can add steady income during your retirement years if you do your due diligence.
Flipping houses is another way to invest in real estate and turn a profit. Popular television shows would have you believe that this is easy and that it is a fast way to build wealth quickly. The truth of the matter is that a majority of people who try flipping property end up with a losing proposition. However, some are good at it and make quite a bit of extra cash.
The key is understanding the market in the local area and being able to do much of the work yourself when it comes to fixing up the property. Another option is to fund a flip and enjoy some of the proceeds while someone else does all of the work. The key to success in this retirement income opportunity is to do your research before you buy.
Real Estate Investment Trust (REITs)
A real estate investment trust is a way that you can invest in real estate without actually owning the property. Instead, you buy into the company that owns, operates, or provides financing for real estate projects. It is much like investing in a stock.
You can find public REITs that trade on the stock exchanges, which makes them easy to research before investing. Like any other investment, there is always the possibility that it will lose value instead of gaining. Another option is holding your real estate investments in a Roth IRA and enjoying some tax savings. These are popular investment instruments for those who want to take a hands-off approach to real estate investing.
Real Estate Mutual Funds and Exchange Traded Funds
Investing in individual REITs is similar to investing in individual stocks. It carries many of the same risks depending on the housing market at the time. For those who like mutual funds, you can invest in mutual funds that only contain REITs. Exchange-traded funds that specialize in this asset class are also available. If you decide to take this route, make sure to know what the expense ratio is and take a look at the manager’s track record. These are usually considered a lower risk option because the performance of the mutual fund or ETF does not depend on the performance of an individual REIT. Instead, it averages out across the portfolio.
Real estate can be an excellent way to add to your retirement portfolio. One thing to keep in mind is that even though the market is experiencing some volatility now, real estate is considered a long-term investment. The real estate market goes in cycles just like every other investment. You also need to understand that just like the stock market, local markets may be responding more slowly to these trends or going in the opposite direction even though the overall market is trending in one direction.
Even with many local markets at all-time highs as far as price is concerned, that does not mean that there are no excellent bargains to be found if you look for them. Real estate can be a lucrative addition to your investment portfolio. Still, just as with any other investment, you need to do your own research and make sure that the market you are investing in is an area where more people are moving into than away from overall.