Investing in real estate has become immensely popular for many reasons. As American real estate investor and philanthropist Louis Glickman said, “The best investment on earth is earth.” It is one of the best ways to build wealth, and it’s not only for the rich or famous.
Reasons to Invest in Real Estate
Investing in real estate, just as with other types of investments, doesn’t guarantee a return and it comes with some risks. But there are some great potential benefits:
- Great returns over time due to property value appreciation.
- The opportunity to generate steady cash flow.
- Long-term ownership security.
- Tax benefits.
- Investment portfolio diversification.
- Financial leverage to make real estate purchases.
- A hedge against inflation.
- Control over the investment.
What Type of Real Estate is the Best Investment
The best type of investment is determined by a careful assessment of what meets your goals and what is right for your own financial situation. Here are seven types of real estate investment opportunities:
- Short-term (vacation) rental properties. These can offer significant income but also require extensive cleaning and maintenance.
- Long-term rentals. This type of investment requires becoming a “landlord.” Income is more stable with long-term versus short-term rentals, but the demands of ownership can be extensive, and purchasing a property can require a significant amount of upfront capital.
- Fix and flip. Popularized, at least in part, by the many “fixer-upper” shows on the HGTV network, this is a good way to get started in real estate investing, if you have the cash on hand to do so. It just isn’t as easy as it appears to be on TV.
- House hacking. This approach involves buying a duplex, triplex, or fourplex, and then living in one of the units while renting the other units out to tenants.
- Commercial real estate. Commercial property comes with higher costs compared to residential real estate, but the revenue opportunities can be much higher. The scope of this type of investment generally requires professional management.
- Real Estate Investment Trusts (REITs). This is a passive investment in companies that own commercial properties.
- Real estate crowdfunding. Using a small amount of money, an investor can gain partial ownership of properties using crowdfunding platforms.
The Most Important Factors Investing
The best real estate investment is one that is carefully selected to meet your goals and objectives. The factors involved in a successful investment are: first, make sure you have clearly defined the purpose for your investment and that the investment horizon is identified. Second, understand the real estate market conditions. Third, choose the right location that has proximity to the services required for that property type. Fourth, make sure that property valuation is assessed properly. Fifth, calculate the expected cash flows and profit opportunities. And sixth, be careful with financial leverage. Know how to handle loans, debt, and liquidity.
Seek Expert Financing Assistance
Contact CapitalAx Commercial Lending, based in Lubbock, TX to get the financing you need to establish and grow your business. We offer a wide range of commercial financing to help you achieve your goals.