No matter what approach you take to investing, your goal is no doubt to make as much money as possible. And if you're willing to dabble in these specific real estate strategies, you could end up building a large amount of wealth over time.
1. Buying and holding income properties
The great thing about owning physical real estate is that homes have a tendency to gain value over time. Now, these days, home values are sitting at record-high levels. That's due to recent housing market conditions -- namely, low inventory and high demand.
But even before the pandemic housing market boom, properties had a tendency to gain value. Data firm Black Knight reports that annual home price growth averaged 3.8% over the 25-year period leading up to 2019.
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Is that the same average growth rate as the stock market? No. From 1957 through 2021, the S&P 500 managed to generate an average annual 10.5% return.
But the upside of owning income properties is that in addition to profiting from home price gains, you have an opportunity to collect rental income steadily. Granted, you can achieve a similar result with dividend stocks. But dividends aren't always guaranteed, and not every company pays them.
2. Buying and holding REITs
Owning physical property carries risk. You could end up spending more than anticipated to maintain an income property, and you could face periods of vacancies.
This isn't to say that buying income properties isn't a good bet. But if your risk tolerance isn't all that high, you may want to look at buying and holding REITs, or real estate investment trusts, instead.
REITs are companies that own different types of properties. Office REITs, for example, lease out space in office building complexes, while industrial REITs operate warehouses and distribution centers.
The upside of owning REITs is twofold. First, there's the potential to profit from share price appreciation, the same way regular stocks and homes could gain value over time.
But also, REITs are known to pay higher-than-average dividends. That's because they're required to distribute a large chunk of their income to shareholders to reap certain tax breaks. As such, you can anticipate steady income through the years when you load your portfolio with REITs.
What's your preferred strategy?
If you're willing to invest in real estate, there's plenty of money to be made. It pays to think about your risk tolerance and the time commitment you're willing to make when deciding how to put your money to work.
If you want a hands-off investment that won't come with surprise ownership costs, REITs may be the better choice. But if you have the time and patience to oversee income properties and are willing to take on the risks, then owning physical real estate could serve you quite well.
Also, these strategies need not be mutually exclusive. Buying income properties as well as REITs could help you meet your financial goals and grow more wealth than you may have imagined. So, if you're interested in investing in both, that's certainly a solid game plan.
