It’s not just a new year. It’s a new year after almost two years of lockdown, quarantine, and other pandemic-fueled restrictions brought on by COVID-19.
So this is the year when everyone wants to make new goals that bring new beginnings. If you have investment goals you’d like to implement this year, real estate could be a great investment to look at.
“The benefits of investing in real estate are numerous,” according to Investopedia. “With well-chosen assets, investors can enjoy predictable cash flow, excellent returns, tax advantages, and diversification—and it’s possible to leverage real estate to build wealth.”
Obviously, as with any investment, there are no guarantees, and you could lose your money. It’s based on speculation, and can therefore backfire in hard economic times, like a recession or the bursting of a bubble. Anything that’s over-inflated is going to rupture at some point.
But with a little bit of foresight, logic and strategy, real estate is one of the most favored investments of the wealthy. In fact, more than 10% of millionaires include real estate in their investment portfolio, and it’s favored 3 to 1 over other investment options.
Benefits of Real Estate Investing
Unlike some investments, real estate is … well, real. In other words, it’s a physical asset you can see, touch, and even live in. Whether you paid too much or too little for a property is almost irrelevant when you have a warm bed and a roof over your head (or a warm bed and roof that you can rent to someone else).
The point is that housing is a necessity in life. People can and do survive when they’re homeless, but it’s definitely a hardship that most of us don’t ever want to endure. Having a place to live is top priority in most people’s lives. Which makes real estate a psychologically more sound investment than, say, gold or cryptocurrency or owning stock in Apple or Facebook (er, sorry … it’s Meta now).
Real estate investment strategy usually includes a few specific goals:
- Generate rental income with tax-deferred profits
- Build up equity through property ownership as prices increase
- Buy low and sell high for a desirable ROI
So if you have a mortgage on a house, but that house is a rental property, and the rent is more than the mortgage payments, you’re in immediate profit. Since the property value is expected to decrease over time, you can apply a depreciation schedule that serves as an expense for deduction. This effectively reduces your operating fees and lowers reported profits, resulting in tax benefits.
But as your property value is decreasing through wear and tear, it’s increasing due to inflation. So you can build up equity through strategic home buying while prices are lower, and profit as values increase.
These benefits are harder to find in other types of investments. But having said that, there are multiple strategies that real estate investors use.
Strategy 1: Long-Term Rentals (Buy and Hold)
This common strategy involves buying a rental property, finding a tenant, and collecting a steady rental income. Many buy-and-hold investors start with just one property but add to their portfolio as time goes on.
Pros | Cons |
---|---|
|
|
Strategy 2: Short-Term Rentals
Purchasing a property to list on Airbnb is becoming more and more popular. It’s similar to the buy-and-hold strategy, except that each rental lasts days instead of years. If you have a vacation home or property in a tourist destination like Las Vegas, this can be a really profitable choice.
Pros | Cons |
---|---|
|
|
Strategy 3: Fix and Flip (Flipping Houses)
Flipping Vegas. Flip This House. Flip or Flop. Flipping Out. Masters of Flip. There’s no shortage of reality shows about how to buy low and sell high in the real estate world, with a ton of improvements and renovations to make it happen.
In other words, using a fix-and-flip investment strategy, or simply flipping houses.
And the fact that these shows are so popular points to one thing … the idea of buying something at a bargain-basement rate and raking in the profits when selling it at a premium is extremely attractive. Buy an undervalued residential property, fix it up, and quickly sell it for profit — what could be simpler?
Of course, simple isn’t the same as easy. But many people still love this strategy.
Pros | Cons |
---|---|
|
|
Strategy 4: Real Estate Wholesaling (Micro Flipping)
Sometimes called micro flipping, this strategy also involves buying an undervalued property and then selling it quickly for profit. But wholesaling requires networking skills and an effective marketing strategy. Your connections give you access to the deals, and your marketing ability gives you access to the buyers.
Pros | Cons |
---|---|
|
|
Strategy 5: Real Estate Investment Trusts (REITs)
This is as close as real estate investing gets to the stock market, so it appeals to stock traders. REITs are publicly traded companies involved in income-producing properties, whether by financing or owning and operating them. Investors can buy shares of these companies in exchange for receiving dividends from any income produced.
You can also invest in a real estate mutual fund or real estate ETF, which add the security of a managed fund.
Pros | Cons |
---|---|
|
|
Bottom Line
If you want to get started in real estate investing, just pick one investment strategy to begin with. Focus on mastering that one strategy before worrying about diversification, which you can implement down the road.
However, just living in a home you’ve purchased is also a great decision. During the years you live in it, the value is likely to go up. But more importantly, the personal rewards from owning a home with your loving family (or as a peaceful retreat for yourself) can far outweigh any monetary gains.
If you’d like a complimentary real estate consultation, we’d be happy to walk you through the best options for you. Give us a call any time to discuss your real estate goals for 2022.
Disclaimer: The Dulcie Crawford Group is made up of real estate professionals, not financial consultants. Please do your due diligence, conduct appropriate research, and consult with your own financial advisor before making investment decisions.