Real estate investments are a great way to diversify your investment portfolio. The complexities of real estate and the different options for investing can make it overwhelming. It is important to understand the fundamentals of investing in real estate. This will allow you to make informed decisions for your goals.
The Pros and Cons of Investing in a Home
Before deciding what type of investment you want to make, it’s important to understand the potential benefits and drawbacks of investing in real estate. If you plan to purchase property, then there is the possibility of renting it out to tenants. This can be a significant advantage, as it can generate an additional source of income for you. Other benefits of investing in real estate include the property’s appreciation over time and the ability to apply certain tax benefits.
While there are many positives, there are also a few challenges that will certainly accompany investing in real estate. It is essential to understand that real estate investments are typically more time-consuming than investing in stocks and bonds. You need to continue putting work into your investment to ensure it remains competitive. Another thing to consider is that real estate is not a liquid investment. If you want to ‘cash in’, you need to go through the process of selling your property, which can take time.
Types of Investments to Consider
Once you have weighed the pros and cons and decided to invest, the next thing to consider is the type of investment you want to make. Mark Litwin, the President of Private Equity firm Marrisa Holdings, spends his day-to-day specializing in real estate investment. With over 35 years of industry experience, Litwin shares, “Today, there are investment options for everyone in the real estate market. You have options that allow you to go all in and options that are lower risk and less time-consuming.”
You can choose the traditional route of a direct purchase. This is a great option for single-detached homes or purchasing a unit within a larger development. “With a direct purchase, you have all the decision-making power in what to do with your investment. You can choose to rent out the property or renovate to increase the value,” Litwin explains. Of course, being the sole owner also means that you will need to pour time and resources into the investment.
If you’re looking for an option that isn’t as labour-intensive, consider investing in a REIT, or real estate investment trust. These allow individual investors to invest in large-scale real estate projects through a company that owns and operates the property investment.
“REITs are a great option for people who are looking for returns without wanting to manage property,” says Litwin. They also convert a traditionally illiquid asset into a liquid one, as most REITs are traded like stocks. This is very appealing for a lot of people.”
Factors to Consider When Choosing Investment Property
Once you have decided what type of investment you want to make, there are two major factors that you should keep in mind when choosing what property you are deciding to invest in.
Location
Determine the property’s proximity to amenities, parks, and scenic views. The status of the neighbourhood and the appeal of the area for residential living will have a significant impact on the property’s value. Keep in mind, this is an investment, so you will want to consider how the area is expected to evolve.
“In most cases, you can contact the municipal government to find out what urban planning they have set for certain locations. This will give you an advantage when choosing where you want to invest,” says Litwin.
New Construction vs Existing Properties
You will also want to weigh the pros and cons of investing in new construction or older properties. Choosing a ‘new’ property can offer the most up-to-date amenities and secure competitive rates if you are considering renting it out, whereas older properties are usually faster to acquire, more convenient, and lower in price.
There is a lot to consider and take into account, so take your time to conduct thorough research when it comes to your investment. Once you have found the right option for you, it can be very lucrative and rewarding to dive into the world of real estate.