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Real estate investing is a terrific way to build your overall assets and future cash flow. Smith & Associates Real Estate discusses the best real estate investments to consider for someone thinking of becoming a real estate investor.

Real estate is a smart investment because it typically has an excellent return potential. Real estate investing also allows you to diversify your portfolio to protect yourself from recessions and other adverse economic conditions like the coronavirus pandemic.

But how do I best invest in real estate?

The answer is there's no one right answer. Consider your situation and determine the best option for you. There are several ways to invest in real estate, and each one has different capital requirements, risk levels, and investment dynamics.

There are several factors that can determine how well your real estate investment performs. Let’s look at the nine best real estate investments you can make.

1. Buy some rental property. One of the most common ways to invest in real estate is to buy an investment property to rent to tenants for income. For many folks, this is a terrific way to invest in real estate to generate wealth and income. The return potential is strong, but it does have some drawbacks. One is that it can be expensive to purchase your first rental property. Also, even if you hire a property manager, rental property ownership can be time-consuming. However, once you get a system down, owning rental properties can generate a substantial passive income.

2. Purchase a vacation home to rent. A vacation rental is different than a long-term rental property in a few important aspects. First, you can enjoy the vacation home when it isn’t occupied. Plus, it can be significantly easier to finance a vacation rental. That’s because it may meet the lender’s definition of a second home, and you needn’t use your rental income to qualify. Lastly, a vacation rental typically will garner you more income per rented day than a comparable long-term rental property. However, note that the effort involved in marketing and managing a vacation rental is more involved than a long-term rental. Property management can also be much more expensive.

3. Flip homes. We’ve all heard of “flipping houses” when an investor purchases a home, makes improvements and then sells it for a profit. There are plenty of TV shows that show how easy this is, but flipping houses can be a full-time job, and there’s considerable risk.

4. Build a spec home. This is similar to fixing up and flipping a home as far as investment dynamics; however, it also includes the initial step of building a house from scratch. Building a spec home can be an especially smart investment strategy where there is a limited supply of new homes from which to select. However, spec houses are more time-consuming because it can take a year or more to build a house from the ground up. There are contractors and sub-contractors that must be coordinated, along with permits and other issues. And the longer timeframe also means additional risk from market fluctuations.

5. Invest in a REIT. Real estate investment trusts, or “REITs,” can be a great way to invest in real estate. There are quite a few REITs that trade on stock exchanges, allowing you to purchase them easily without much capital.

6. Join a real estate crowdfunding opportunity. An experienced real estate developer finds an investment opportunity, and rather than funding the whole project with their own money and bank financing, the developer raises some of the necessary capital from investors like you in exchange for an equity interest in the project. The return potential can be significant, and it allows you to diversify your investment strategy and let you leverage the experience of the developer. But unlike buy-and-hold real estate strategies, the value-add nature of crowdfunding adds an element of execution risk. Plus, liquidity is another big issue because it’s nearly impossible to exit a crowdfunded real estate investment until the property has sold, which may be several years down the road.

7. “House hack.” This is a hybrid approach of purchasing a home to use as a primary residence and buying a rental property. It usually means purchasing a residential property with two to four units and living in one of the units while renting out the others. You can also apply this strategy to buying a single-family home and renting one or more of the rooms. Since you live in the property, even a multi-unit residential property can qualify for primary residence financing. As a result, you can enjoy lower interest rates and lower down payment requirements than investment property financing.

8. Rent out all or part of your own home. While not a true investment strategy, with services like Airbnb, it’s easy to rent out your home when you’re away or to rent out a spare room in your home to generate some extra income.

9. Become a lender. A unique way to invest in real estate is to add real estate debt investments to your portfolio and finance a real estate project. Typically, you can make more from a debt investment than you can from an equity investment. However, debt investments as a whole have less total return potential than equity because when you invest in real estate debt, your return is limited to the income payments you receive.


Of course, there’s no law that says you have to go with only one of the options. The best real estate investments for you may be vastly different than the next person, based on your specific situation, your available capital, risk aversion, and long-term objectives. And some combination of these strategies could be the ticket for you. Determine what you believe is most important to you and decide the best way to invest accordingly.

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Buying real estate is always an exciting and worthwhile investment. Talk to one of our sales professionals about the best way for you to invest in real estate. Visit our directory to find the best Real Estate Agent for you or give us a call at +1 (833) 917-0676.

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