Ever thought about investing in real estate? Unlike traditional investments, such as stocks and bonds, real estate investments are considered alternative assets.
This may sound unappealing, but it doesn’t mean they lack value. On the contrary, investing in real estate can open up a whole new stream of income, provide tax advantages and help to diversify your financial portfolio. But before you start diving into real estate, it’s a good idea to become familiar with the three types of real estate properties:
- Industrial real estate consists of large industrial business properties like warehouses or factories.
- Commercial real estate is also used for business, and includes retail space, offices, farmland and homes larger than four units.
- Residential real estate includes any space used for living (as opposed to business) such as townhouses, condominiums and homes with no more than four units.
Now that you know the different categories, here’s a simple guide to help get you started investing in real estate.
3 main ways to profit from real estate investing
- Leasing for rent—this is probably the most familiar, but if you hold equity ownership of a property, you can earn money by leasing it for rent.
- Appreciation—if the property increases in value over time, you can earn money by selling it for a profit.
- Debt—if you provide a loan to a real estate developer, you can earn money from the interest they pay you on that loan.
Do your due diligence
Before making any investment, put it through a rigorous underwriting process to ensure its financially sound. It’s worth it to hire a third-party real estate underwriter to do this for you to determine the potential risks and rewards. This can help prevent you from making a bad investment.
Do you want to be an active investor or passive investor?
While not for everyone, being an active investor requires you to bear most of the responsibility for a property in order to reap greater investment rewards when you sell it or rent it. To do this, you need to have extensive real estate knowledge and the time and ability to negotiate deals and manage the property (or hire someone to do it for you).
If you don’t have the business acumen to become an active real estate investor, being a passive investor is a much better option for you. As with traditional investments, you can pay a professional to make the best real estate investments on your behalf. This includes a range of investment vehicles, including private equity funds, real estate investment trusts (REITs) and online real estate investment platforms.
Don’t go it alone
If you decide to become an active real estate investor, your bank may be one of your greatest resources. Contact your local Valley branch to request a consultation with a lending expert for commercial or residential real estate.