What type of real estate is the best to invest in

We compare several buy-and-rehab lenders and several long-term landlord loans on LTV, interest rates, closing costs, income requirements and more. A more recent type of real estate investment, privately traded REITs largely grew out of the real estate crowdfunding industry over the last decade.

Many buy and manage large apartment buildings or other commercial properties. Some also invest in real estate-secured debt, to add more income potential for shareholders. That lack of liquidity forms a double-edged sword. It makes the investments long-term, with restricted avenues to sell and convert back to cash. But it also reduces volatility. I personally invest in a few private REITs to further diversify my portfolio. Private REITs can make a great way to spread your money wider, particularly into commercial real estate.

Not all crowdfunding websites follow the private REIT model. Others make loans to real estate investors, funded by the public. It works like this. They apply with the crowdfunding lender, who approves and funds their loan. The crowdfunding lender then raises money from the public to reimburse their coffers. You, as the investor, often get to pick and choose individual loans to fund.

Groundfloor grades each loan on risk, paying higher interest for higher-risk loans. What I particularly love about this model is that the loans are all short-term, typically months.

That makes for a much shorter commitment than the five-plus years required by many private REITs. Alternatively, you can lend money directly to real estate investors who you know and trust, in the form of private notes. You have few protections, as a private note lender, unless you go through the trouble of recording a lien against the property. Which often proves impractical in the case of private notes. With a private note, you get to negotiate your own terms. Only offer a private note to investors you know well, who have demonstrated a long track record of success.

But when you find good borrowers, you can earn excellent returns on a truly passive investment. When you reach accredited investor status, the doors open to a wide range of additional investment options. You can invest in real estate syndications, for example. These tend to be large commercial real estate projects, where you invest money to become a fractional owner. The syndicator the primary investor oversees buying and managing the property, and you earn money passively as a partial owner of the property.

Alternatively, you can invest in private equity funds, hedge funds, opportunity funds, and other privately managed funds. Many invest in real estate in one way or another, and most cater specifically to accredited investors.

Why only accredited investors? The types of real estate investments that the rich opt into, because they can opt out of protectionist regulation. New investors wondering how to invest in real estate underestimate the full range of options available.

Ultimately, the best way to invest in real estate depends on your long-term goals, risk tolerance, and willingness to learn how to invest in real estate directly.

For those not interested in learning the ropes, they can still diversify into real estate through REITs, crowdfunded real estate loans, and perhaps even real estate syndications or private notes.

But anyone willing to master direct real estate investing can benefit from tax advantages, predictable returns, and a slew of other benefits to real estate vs. Choose carefully, as you review the various types of real estate investments.

Brian Davis is a landlord, real estate investor, and co-founder of SparkRental. His mission: to help 5, people reach financial independence by replacing their jobs with rental income. If you want to be one of them, join Brian, Deni, and guest Scott Hoefler for a free masterclass on how Scott ditched his day job in under five years.

Great point Bill! I once knew a woman who had three boarding houses next to each other and she lived entirely off the rents from the rooms. Required some more labor on her part, but she made good money. Great information for the want to be real estate investors out there.

Always good to get professional advice and assistance for big decisions like this. House hacking is an amazing way to get started in real estate, especially as a younger investor. When I got started I purchased a two flat where I lived in one and rented out the other. I updated the unit I lived in and then a year later I moved into the other unit and rented out the unit I previously lived in for much more. Great post! Your email address will not be published. Save my name, email, and website in this browser for the next time I comment.

Compare landlord lenders and fix-n-flip lenders on our simple Loans chart. Compare Loan Terms. Free Lease Agreement. Open rotating credit lines as a real estate investor! Get a quote or see how it works:. Credit, criminal, eviction reports also available. My 1 Question. First Name. Email Address. Privacy Policy: Your info will never be shared or sold to a 3rd party.

Even if Dr. On the downside, spec houses are more time-consuming. It generally takes a couple of months to fix up an existing home, but it can take a year or more to build a house from scratch. Be sure your returns justify the increased time commitment, as you can potentially complete several fix-and-flip projects in the time it takes to build one house from the ground up. The longer timeframe also creates the additional risk factor of market fluctuations.

Your real estate market might be hot right now, things can change quite a bit in the year it takes you to build a house. You don't need to start a mortgage company or directly lend money to anyone -- there are other ways to add real estate debt investments to your portfolio. Many of the same crowdfunding platforms I discussed earlier also list debt investments. There are also some platforms, such as Groundfloor, that let you choose individual real estate loans to invest in think of this as a Lending-Club-type platform for real estate.

There are several reasons that a debt investment might be smart for you. For one thing, you can typically get more income from a debt investment than you can from an equity investment. Instead of an investor making interest payments to a bank, they make payments to you and other debt investors.

Debt investors also have a senior claim to the assets of an investment project. If a crowdfunded investment goes sour, debt investors get their money back before equity investors do. On the downside, debt investments as a whole have less total return potential than equity.

When you invest in real estate debt, you give up some potential upside in exchange for steady income and lower risk. In fact, the best way to invest in real estate for most people can be a combination of a few options. For example, I own a few rental properties, invest in several REITs, and plan to buy a vacation rental within the next year or so. My REITs give me lots of liquidity if I need it and my rental properties give me excellent long-term return potential while providing a nice income stream.

Our team of analysts agrees. These 10 real estate plays are the best ways to invest in real estate right now. Find out how you can get started with Real Estate Winners by clicking here. Advertiser Disclosure We do receive compensation from some affiliate partners whose offers appear here. Millionacres Logo. Tax Deductions Depreciation Capital Gains. New York City Denver Philadelphia. Local Real Estate News. Research Real Estate Glossary. Podcasts Webinars Videos.

View Memberships. Search For. Buy a rental property The most obvious way to become a real estate investor is to buy an investment property or several. Uncertainty: When it comes to rental properties, vacancies happen and things break. While the overall return potential can be great, rental properties have considerable short-term risk. Time commitment: Even if you hire a property management company , owning a rental can be a time-consuming form of real estate investing. Participate in a real estate crowdfunding opportunity Crowdfunding is a relatively new way to invest in real estate, and it's growing rapidly.

Buy a vacation rental A vacation rental is different than a long-term rental property in a few key ways. Your equity in a condo will typically be lower than for a single-family home, but your monthly income will be much higher.

I have clients who keep buying condos near universities and have no plans to sell any of them. They make a steady, high income each month and have no trouble finding new tenants.

They allow you, as an individual investor, to buy shares of and earn dividends from real estate assets on an exchange, like stocks or ETFs. REITs are generally low-risk, high-liquidity investments that offer good diversification and reliable — and potentially high — returns. Start small, and look for REITs that have a good track record, showcased by experienced management, growth in earnings and satisfied investors.

Do your due diligence, and ask for referrals before investing. If renting an investment property to one tenant is good, renting the same property to two tenants is even better.

Look for a property that you can legally lease to two long-term tenants; for example, one that includes a mother-in-law suite or a furnished garage or basement unit with its own separate entrance. Single-family homes with additional dwelling units ADUs and other properties that can be divided into two rental properties are in high demand.

But if you find one that is legally built and zoned, you can build two steady sources of income with one purchase. Just be sure that you are leasing each unit for more than 30 days at a time. There are many different ways to get started, but the important thing is that you take the first step. Forbes Real Estate Council is an invitation-only community for executives in the real estate industry.