Before we get into how to invest in real estate, let’s briefly discuss why real estate can be a good investment. And the answer is simple. Investing in real estate is another way to diversify your portfolio. And as we know, diversification is a good thing. Now, let’s take a look at these 4 strategies if you want to invest in real estate.
1. Purchase rental property and be a hands-on owner
The next thing to consider is whether you want to be hands-off or if you want to be involved in the day-to-day rental activities of a property. These activities include dealing with tenants, keeping up with property maintenance, fixing broken items, etc.
Often, the people who choose to be hands-on owners work in a trade (i.e., they’re plumbers or electricians). Or, they’re very handy and have good connections to trusted people within specific trades. That way they can maintain the property themselves with some help here and there. But that’s not going to help when having to deal with bad tenants.
Tenants can be very difficult. And in a state like Massachusetts, it’s really hard to evict them. There are rules and regulations meant to protect tenants, but it can be really challenging when you want to get rid of them. This situation is something you need to be aware of prior to purchasing a property and being a hands-on owner. So, if these are headaches you’d rather not deal with, then being a hands-on owner may not be for you. However, that doesn’t mean you can’t still invest in real estate.
2. Purchase multiple rental properties and hire a property manager
There’s another option where you can purchase real estate and not have to deal with the daily operations. How? You can hire a property manager. The property manager will deal with bad tenants, handle maintenance, and fix problems with the property. Sounds perfect, right? Not so fast. The key word is hire. You need to pay for this service. So, in order to make the investment worth it in this scenario, you need to think about purchasing multiple properties. Think of it as economies of scale. By increasing your rental income with additional properties, it will help make the cost of the property manager worth it.
3. Purchase real estate investment trust
If neither of these options work for you, but you’re still interested in diversifying your investments with real estate, you can purchase real estate investment trust. A REIT (real estate investment trust) is a company that makes investments in income-producing real estate. You can buy shares of REIT and own real estate through this option. And in this scenario, you can choose residential or commercial real estate; mortgage companies; international property, or all of the above. This option allows you to capture the returns of real estate without being actively involved. Learn more about REIT in our previous post.
4. Purchase a fixer upper
Another idea to consider (if you’re handy or have friends in the trades) is to purchase a fixer upper. You can buy a property that needs work, fix it up, and then sell for a profit. And then move on to the next property and do the same thing. Some people even choose to live in the property while they fix it up to save even more money!
Learn more by listening to our podcast on these strategies to invest in real estate.
So, if you’re interested in diversifying your portfolio with real estate investments but you’re not sure which option is for you, then contact us so we can help you decide what is right for you.