Many people are familiar with the concept of buying stocks. But real estate investing is a whole different world -- and one that a lot of folks have yet to dabble in.
The reality, though, is that investing in real estate is a great way to diversify your portfolio. If the stock market tanks, your real estate holdings could limit the extent to which your portfolio value declines. At the same time, branching out into real estate could lead to a world of wealth-building opportunities.
But if you're going to dabble in real estate, you need to know what you're getting into. Here are a few things most people may not realize about real estate investing.
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1. You don't need to sink a lot of time into being a landlord
Buying income properties and holding on to them for many years could make you very wealthy over time. Not only do homes have a tendency to gain value, but the rental income you collect could more than cover your property ownership costs, leaving you with steady yearly profits.
Now at first glance, the idea of becoming a landlord may be far from appealing. But one thing you should realize is that you don't have to be a hands-on landlord if you don't want to. Rather, you can hire a property manager and outsource the bulk, if not all, of that work to another party.
If you hire a property manager, you won't have to bother with things like lease renewals, snow removal, and repairs -- because you'll be paying someone else to do that work for you. And if you go that route, the properties you own could become a source of passive income in the truest sense of the word.
2. House flipping isn't for the faint of heart
Those TV shows you see where homes get flipped on a shoestring budget? Things don't always work out so magically.
While house flipping may seem like a good way to start investing in real estate, the reality is that there are many risks involved. For one thing, your renovation budget could end up getting busted, which could eat into your profits or wipe them out entirely. Plus, if you buy a fixer-upper in a market that's saturated with homes, you may have a hard time finding a buyer.
This isn't to say that you can't make money flipping houses. Rather, proceed with caution -- and consider partnering up with someone who's done it before for your first go-round.
3. You can invest in real estate without actually owning property
Any time you take ownership of a given property, you assume certain costs and risks. And those may not align with your comfort level. But one thing you should know is that it's possible to invest in real estate without actually owning property. All you need to do is load up on REITs.
REITs, or real estate investment trusts, are companies that own and operate different types of properties. Many REITs trade publicly, so you can buy and sell them the same way you would with stocks. And because REITs tend to pay higher-than-average dividends, they're a great way to generate steady income in your portfolio.
You may be new to the world of real estate investing -- but that shouldn't stop you from diving in. A lot of people aren't sure what real estate investing really entails, but the more reading you do, the more opportunities you might discover.
