One of the most important things you can do as an investor is branch out. Rather than limit yourself to a bunch of stocks and bonds, it's a good idea to diversify by moving into real estate investing.
If you're looking to go that route, here are three specific moves that might serve you well.
1. Investing in a long-term rental
There are certain essential expenses people will always pay for, even during periods of economic decline. One such expense is a roof over their heads. That's why buying an income property and using it as a long-term rental is a good idea.
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The upside of owning a long-term rental is getting a stream of consistent income to look forward to, all while holding onto an asset with the potential to gain value over time. In fact, if you buy a long-term rental in the right market and price it just right, you may find that your rental income more than covers your operating costs so that by the time you're ready to sell, you're looking at a world of profit.
2. Investing in a short-term rental
When you purchase an income property, you have a choice: Rent it out on a long-term basis or bill it as a short-term rental instead.
Short-term rentals carry risk. For one thing, you're not getting a predictable stream of income. Also, you may be more likely to wind up with tenants who don't treat your rental home with the respect it deserves.
But short-term rentals also have a lot of upsides. You might manage to capitalize on seasonal demand by commanding an astounding nightly rate for your rental at times. That alone could give you the capital you need to grow your portfolio or make up for periods when that home sits vacant.
3. Investing in REITs
REITs, or real estate investment trusts, are companies that make money by leasing out space in the properties they own. The upside of REITs is that they're required to pay at least 90% of their taxable income to shareholders as dividends. And that could make for a nice source of steady income, just like a long-term rental could.
Plus, REITs shares have the potential to gain a lot of value over time. So if you hold your REITs for many years, you could end up making a nice profit once you're ready to sell.
REITs also allow you to invest in real estate without taking on the same risks of owning rental homes. Whether you decide to use your income property as a short-term rental or a long-term one, you might still face costly maintenance and repairs through the years. And you never know when your property tax bill might rise. With REITs, you don't take on any of that risk because you don't own any actual property directly.
Investing in real estate is a great way to grow wealth. Make these moves, and you could end up in a solid financial position down the line.
