House Investment

REAL ESTATE INVESTING

Different ways to invest in real estate

By IMMOCITO | Updated July 06, 2021

Table of Contents

When you think about real estate investing, the first thing that probably comes to mind is your home. Of course, real estate investors have lots of other options when it comes to choosing investments, and they’re not all physical properties.

Key Takeaways

  • One of the key ways investors can make money in real estate is to become a landlord of a rental property.
  • Flippers buy undervalued real estate, fix it up, and sell for a profit.
  • Real estate investment trusts (REITs) provide real estate exposure without the need to own, operate, or finance properties.

Real estate has become a popular investment vehicle over the last 50 years or so. Here’s a look at some of the leading options for individual investors, along with the reasons to invest.

Rental Properties

If you invest in rental properties, you become a landlord—so you need to consider if you’ll be comfortable in that role. As the landlord, you’ll be responsible for things like paying the mortgage, property taxes, and insurance, maintaining the property, finding tenants, and dealing with any problems.

Unless you hire a property manager to handle the details, being a landlord is a hands-on investment. Depending on your situation, taking care of the property and the tenants can be a 24/7 job—and one that’s not always pleasant. If you choose your properties and tenants carefully, however, you can lower the risk of having major problems.

One way landlords make money is by collecting rent. How much rent you can charge depends on where the rental is located. Still, it can be difficult to determine the best rent because if you charge too much you’ll chase tenants away, and if you charge too little you’ll leave money on the table. A common strategy is to charge enough rent to cover expenses until the mortgage has been paid, at which time the majority of the rent becomes profit.

Historical Prices

Real estate has long been considered a sound investment, and for good reason. Before 2007, historical housing data made it seem like prices could continue to climb indefinitely. With few exceptions, the average sale price of homes in the U.S. increased each year between 1963 and 2007—the start of the Great Recession.

This chart from the Federal Reserve Bank of St. Louis shows average sales prices between 1963 and 2019 (the most recent data available). The areas that are shaded in light grey indicate U.S. recessions.