10 Real Estate Investing Tips for 2022

Real estate investing can be an incredible way to diversify your investment portfolio, build wealth, benefit from tax advantages, or earn cash flow. If you're new to the industry, branching into the world of real estate can be a bit intimidating. To help curb the learning curve, here are 10 real estate investing tips that will help you hit the ground running in 2022.

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There are so many ways to invest in real estate. Investors can invest actively or take a more passive route by purchasing shares of real estate investment trusts (REITs) or participating in crowdfunding opportunities -- from residential to commercial real estate, rental properties, mortgage notes, or fix-and-flips.

While many investors choose to focus on a single investment arena when they are just getting started, there are benefits to having a diverse range of investments in your portfolio. REITs are an easy and accessible way to diversify, but you may want to consider owning properties in different markets or asset classes as an active investor.

ALSO READ: Real Estate Investment Trusts: What They Are and How to Invest in Them

Publicly traded REITs (pronounced REETs) are one of the easiest ways to invest in real estate today because you can trade shares of the companies through most brokerage accounts. Because of their unique tax structure, REITs are required to earn at least 80% of their revenues from real estate and pay out more than 90% of their taxable earnings to shareholders in the form of dividends -- making REITs a great dividend source for your investment account.

There are over 225 REITs to choose from in nearly every type of real estate sector imaginable. Start by learning the basics about investing in REITs and slowly build your portfolio from there.

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Rental real estate can be a super valuable way to generate cash flow, build wealth through real estate appreciation, benefit from tax deductions, and hedge against inflation. Unlike other real estate asset classes, rental rates and real estate values adjust with inflation, meaning your investment hedges the rising cost for goods.

If you buy and hold for the long term, your tenant can pay for the mortgage while you earn additional income, leaving you with a property paid off or with significant equity backed by an inflation-adjusted asset.

If you do choose to invest in real estate yourself, owning and managing a rental property, vacation rental, or fix-and-flip, it's highly recommended you invest through a limited liability company (LLC) or a trust.

Doing this not only protects the asset but also reduces your liability and risk exposure, separating you from your LLC/company's holdings in the event of litigation. It also means you can benefit from certain business write-offs relating to the management or ownership of the property.

Don't get swept away by the endless possibility of an investment without taking the time to truly understand how the market or strategy works on an intimate level. It's super important to be aware of the risks relating to the investment and ensure the proper measures are being taken to hedge that risk.

If you are branching into a new market or neighborhood, make sure you firmly understand the market -- its values, crime rates, and, most importantly, supply and demand.

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There's a lot that goes into investing in real estate. Tax preparation, bookkeeping, legal advice, and the active management of a rental property all require time and effort to maintain. While many investors choose to tackle these tasks themselves, you shouldn't be afraid to outsource any or all to a skilled and/or licensed professional.

You can save yourself a lot of time, headaches, and money by hiring a third-party property manager to manage your rental or building a team of qualified attorneys, accountants, and bookkeepers.

Markets fall, and expenses pop up. Inevitably, there will come a time your investment goes awry and having an extra cushion helps give you peace of mind and covers costs as they arise.

If you own rental property, the rule of thumb is to set aside 10% of the rental income for future improvements and repairs. However, this number could be higher or lower depending on the condition and age of the property or its major fixtures, such as the roof or HVAC system.

If you're choosing to invest in REITs only, it's important you don't put all your savings or retirement into the market and always have additional savings you can rely on.

There's a saying in real estate: "You make money when you buy." Purchase price isn't everything, but it's 80% of everything. Some investments will never make sense no matter the price, but most will make sense if the price is right.

This applies to buying shares of a REIT in the stock market or physical real estate as an investment property. Understand the investment's value as it relates to its dividend or cash flow return, growth opportunities, and performance today.

ALSO READ: 3 Top Value Stocks for 2022 and Beyond

Eventually, there will come a time you're ready to sell a property. It may be advantageous to move the profit from one into another, your tax benefits (such as depreciation) may have run dry, or maybe you just want to simplify or downsize your portfolio. Rather than selling the property and taking a huge tax hit with capital gains, you can utilize a 1031 exchange.

This unique tax structure allows you to roll uncaptured profits from a property into another investment property. This advanced tax vehicle can be hugely beneficial for real estate investors, but it's recommended you work with a knowledgeable attorney to help guide you through the process.

Real estate investing is a long game. While there are short-term strategies like fix-and-flips, investors should take a long-term approach to their investment strategies. Maximum tax benefits, appreciation, and cash flow opportunities can be realized when the investment is held for 10, 20, or 30 years.

There will undoubtedly be shaky times in between, but by keeping the long term in mind, you should be able to ride through any turbulence with ease.

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Presented by Motley Fool Stock Advisor

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Real estate values are rising at record speeds. Demand for real estate across nearly all sectors is growing rapidly, making right now a great time to dive into this sector. Investors will always look back and wish they had invested more or invested earlier, so don't put off investing. Choose your strategy and start little by little. And use these 10 tips to make the most of your investing efforts.

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