You'll often hear that the key to being a successful investor is maintaining a diverse portfolio. And for you, that could mean branching out into the world of real estate if your portfolio is largely limited to stocks and bonds.
But dabbling in real estate for the first time can be daunting. Here are some tips to get you started.
1. Assess your appetite for risk
Just as some stocks are riskier than others, so too can elements of real estate investing vary in terms of risk. Buying physical properties, for example, is a somewhat risky prospect -- namely because of the many things that have the potential to go wrong.
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Say you decide to purchase an income property. That home might need a host of repairs through the years -- repairs that eat away at your bottom line. You might also struggle to find tenants for your property or end up renting to tenants who don't pay on time or treat your home with respect.
This isn't to say that buying income properties is a bad idea. But if you're the more risk-averse type, you may want to consider putting money into REITs, or real estate investment trusts, instead.
REITs don't require you to own actual properties. Rather, you invest in companies that operate properties and derive revenue from them.
There are different types of REITs you can invest in, each of which carry their own risk. Mall REITs, for example, are a bit riskier these days due to the record number of stores that have closed in recent years. Industrial REITs may be less risky due to an uptick in digital sales that has increased the need for warehouses and distribution centers.
Ultimately, you'll need to do a fair amount of research before loading up your portfolio. But knowing where you stand from a risk perspective is an essential first step.
2. Figure out how much time you have to dedicate to your portfolio
Some real estate investors have the option to be hands on. And if that's the case, you could do quite well buying income properties and renting them out on either a short- or long-term basis.
On the other hand, if you don't have a lot of time to sink into maintaining your investments, then you may not want to sign up to become a landlord or get into the house-flipping business. Instead, you may want to look at buying REITs, where you don't have to do a thing.
3. Map out your investment window
Many people buy stocks with the goal of holding them for many years so they can gain value. You may want to take a similar approaching to real estate investing -- or maybe not. The choice is yours, but it's important to know what investment window you're dealing with.
If you're looking at real estate as more of a short-term investment, then house-flipping is an option worth considering, as it could allow you to turn a decent profit quickly. If you're taking a longer-term approach, buying income properties that appreciate in value is something you may want to look at, and the same holds true for buying REITs.
4. See if it pays to partner up
If you're going to invest in physical properties, it could help to have a fellow investor to team up with. Not only can you and a partner pool resources to procure more properties, but you'll also have someone to split the work with.
Say you decide to purchase an income property and you don't want to outsource its upkeep or rent collection to a property manager. If you get a partner to invest with, you'll have someone to split the maintenance and administrative work with.
Ready to get started?
Investing in real estate could prove quite lucrative, and the sooner you get started, the more opportunity you'll have to grow wealth within that space. These tips should help you get the ball rolling -- and start building a portfolio that could one day make you quite rich.
