I was lucky enough to get started investing in real estate in my early 20s. While starting young isn't a luxury many investors have, the good news is that it's never too late to get started.
If I were to start real estate investing all over again, here are three investing moves I'd make to set myself up for the future.
1. Buy rental property
Rental property can be a tremendous way to build wealth and generate passive income. Long-term rental property, like a condo, duplex, or single-family home, has the potential not just to earn cash flow but also to appreciate over time.
Buying a rental and holding for 10, 20, or 30 years gives the property time to build value while the tenant pays down any debt or mortgage on the property. This creates free equity that can be used to buy more investment properties or help boost retirement savings.
Considering the housing market has gone nowhere but up over the last 12 years, there's no better time to buy than now. Buying low is always ideal and increases your chance of earning more cash flow or a greater return, but looking back at prices 10 years ago, I wish I had bought more rentals. Just remember to focus on cash flow and ensure the current or potential rent more than covers the cost of owning the property.
2. Investing in REITs
REITs, which are short for real estate investment trusts, are something I've only recently added to my real estate investment portfolio, and I wish I invested in them far sooner. These special types of stocks invest solely in real estate and real estate-related securities like mortgages. They are professionally managed by a skilled team and own a variety of high-quality assets across every industry in the real estate field.
There are both private REITs and public REITs to invest in, although I personally focus on public REITs for the ease of being able to buy shares in my brokerage account. Plus, since REITs are required to pay 90% or more of taxable income in the form of dividends in order to benefit from certain tax advantages, my passive investment in REITs earns me consistent, reliable dividend income.
Just keep in mind that not every REIT is a worthwhile buy. REITs are susceptible to market volatility but also driven by their own unique supply and demand factors that impact how much revenue the company can generate and if its portfolio is occupied or not. But if the REIT is chosen wisely and held for the long term, there's a good chance you'll be thanking yourself later for buying it.
3. Holding for the long term
This move isn't exactly exclusive to real estate investing. Holding stocks -- any stocks -- for the long term is always recommended, as it increases your chances for greater returns. However, it's a move worth emphasizing. If I bought a REIT or a rental property with the short term in mind, I could be forced to sell while the market is down or in unfavorable conditions.
Holding for the long term and letting things like dividend increases, which are super common with REITs, and price appreciation do their magic means I have a far greater chance of increasing my annualized returns.
These three moves should without a doubt kick-start your real estate investment portfolio and be something you thank yourself for later.