Best Real Estate Investments

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Contributor, Benzinga
December 20, 2023

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Look beyond the brutal portrayal of the mobster lifestyle in the highly regarded TV program, “The Sopranos,” and you’ll find the occasional life lesson worth learning. One of them occurred when titular antihero Tony Soprano turned to his son and told him to invest in land because God wasn’t making any more of it. That right there is the core argument for real estate investment — limited supply combined with growing demand can translate to profitability. Better yet, you don’t need to be loaded as this sector offers several ways to grow your wealth.

Best Real Estate Investment Options

Although property investment deals represent the ultimate image of the American Dream, some people are not ready to make the major commitment that a mortgage requires. Even applying for a home loan is difficult. Not only have lending standards increased since the last housing crisis and Great Recession, but you may find yourself competing with all-cash buyers.

Even if money isn’t the problem, renting out properties to strangers can be a stressful affair. For one thing, you never know what issues may arise. Secondly, the litigious nature of contemporary society means that landlords must be certain that they are acting transparently and within the law. A misstep can be devastating both financially and reputationally.

It’s no wonder, then, that many refuse to deal with the direct approach of housing-related ventures. But before you give up, consider these real estate investment alternatives.

REITs

Real estate investment trusts (REITs) are companies that own, operate or finance income-producing real estate holdings. The beauty of REITs centers on their convenience and passive income generation. Most REITs are publicly traded securities, enabling buyers to pick them up like regular common stocks. Also, they’re liquid, allowing you to sell them relatively easily if you want. By law, REITs must pay a minimum of 90% of their taxable income to shareholders in the form of dividends.

REIGs

Real-estate investment groups (REIGs) are companies that mostly focus on real estate investment deals. In most cases, REIGs identify viable properties for purchase at a reasonable price. Later, a REIG pays for renovation work with the intent of selling at a sizable profit. Also common among REIGs is investing in multi-unit properties and then selling individual units to investors. Before investing in this real estate category, please note that different REIG structures exist, including pass-through partnerships that have complicated tax implications.

Flipping Houses

One of the riskiest categories of real estate investment, the concept of flipping houses, attracts the most attention. A great example is the HGTV reality series Flip or Flop, which follows the exploits of a couple buying homes at a discount that require some care and flipping them at a much higher price following a renovation. On successful flips, the profit margin can be astounding. However, the opposite is also true — and even professionals routinely make costly errors.

Real Estate Crowdfunding

In recent years, crowdfunding — or the pooling of individual contributions to partake in a greater investment opportunity — gained substantial traction. While the sector is mostly associated with capital raises in private equity campaigns, real estate crowdfunding has also taken off, enabling everyday retail investors to buy a stake in a compelling project that they ordinarily would not have access to.

What About Taxes?

As Benjamin Franklin once referenced, “In this world, nothing can be said to be certain, except death and taxes.” And when it comes to deciphering the total implications of the latter for real estate holdings, you may end up wishing for the former.

All this to say, before you embark on any property investment, make sure to hire a qualified accountant who can guide you regarding the complexities of real estate taxes. None of the information in this article should be construed as tax or legal advice. A professional accountant will be able to help you in these areas.

Tax Identity Implications

If you invest as a real estate business, the Internal Revenue Service (IRS) may treat you differently than if you act as an individual investor. Since you don’t want to run afoul of tax regulators and potentially subject yourself to greater scrutiny, make sure to consult an accountant before embarking on a property-related venture.

Deductions

As the IRS states, you can claim credits and deductions when you file your tax return. Spare yourself the heartache of making tax mistakes and get an accountant you can trust. This way, you can have confidence that you are taking lawful, appropriate deductions.

Depreciation

In consumer-level contexts, depreciation is usually a negative concept. For instance, depreciation explains why you lose 20% or more of the value of your new car in the first year of ownership. But in a real estate investment, particularly for rental property owners, you can use depreciation to reduce your tax liability. The process is a complicated one, varying between different use cases. Consult a professional accountant to handle the nuances of your situation.

Benefits of Real Estate Investments

Based on its broad range of applications, most people focus on property investment deals to build their wealth. Below are the key benefits of real estate investments.

Consistent Income

Unlike other investment classes such as common stock of publicly traded companies, real estate prices rarely fluctuate to extreme magnitudes. Thus, if a particular market will bear a rental price of $1,000 a month, you have reasonable assurances that this will not change much, giving you rental income consistency and predictability.

Rising Property Values

In the above example, not only do you have reasonable assurances that the rent will be $1,000 per month one year later, if any changes occur, they will likely be to the upside. Of course, that’s not always the case. But if you have a property investment in a desirable metropolitan area, chances are, you can expect price appreciation.

Financial Security

Among the biggest advantages of real estate holdings is financial security. Because the Earth only has limited habitable areas, owning property essentially gives you land rights. As the global population increases, such land should — all other things being equal — rise in value.

Inheritance

While many financial analysts sounded the warning bell that millennials have not achieved important life milestones relative to older generations, it’s important to keep in mind one fact: the massive amount of wealth that baby boomers accumulated will transfer to someone. Presumably, millennials will become the luckiest demographic in the U.S., highlighting a key attribute of property investing.

The Role of Tech

During the “analog” days, a major challenge associated with property investment was paperwork. As well, the timing of moving from one area to another and the threat of paying double mortgages loomed heavily. But with tech-based platforms performing much of the grunt work of property-related transactions, it’s never been easier to move in and out.

The Downsides of Real Estate Investments

While real estate investments represent one of the best ways to build wealth, you need to be aware of potential pitfalls.

Market Volatility

Real estate market prices don’t fluctuate nearly as much as other asset categories. However, during once-in-a-blue-moon events, a severe correction can lead to devastating losses. Perform due diligence before buying a real estate investment.

Mortgage Standards Raised

Before the last housing bubble and collapse, NINJA loans (the acronym for “no income, no job, no assets”) began spreading throughout the home lending infrastructure. As a result, government regulators forced mortgage companies to raise their standards. But subsequently, this requirement makes it harder for you to qualify for a loan.

Capital Intensive

While you don’t need to be rich, you do need to have some funds to participate in real estate investments. There’s no sugarcoating this. If you don’t have the funds, you should wait and build more rather than stretch yourself to the hilt.

Assistance Often Required

Not only is this investment category capital intensive, but it’s also a complex one requiring much research and investigation. Even with that, you will likely need professional help, such as legal and accounting advice, which is costly.

Community Dynamics Can Change

You might buy into a gorgeous condo community, but 10 years from now, when you expect the property to be soaring and your return on investment to be almost astronomical, the dynamics of the neighborhood could change. If people start moving, prices drop, your ROI drops and the investment sours. Keep your finger on the pulse of the community to make sure you’re making wise investments or exits.

Who Should Invest in Real Estate?

In many cases, investment classes cater to specific functions or demographics. For instance, bonds and conservative money market funds best align themselves with retirement strategies for seniors. On the other hand, cryptocurrencies tend to cater to the young, who tend to be more technology-savvy and have time to remedy poor life decisions.

What distinguishes real estate investment options, though, is that they’re appropriate for virtually everyone. At the end of the day, most folks aim to pay down their mortgage in full, thereby giving them a roof over their heads during their golden years, when income streams usually become fixed.

Although think tanks and researchers debate this concept, real estate investment holdings tend to be the best way to build wealth. Under one asset category, you can enjoy the key attributes that drive real estate investments, such as capital appreciation, leverage, cash flow and protection against inflation.

Below are people and entities that may benefit from property investment options.

Businesses

Many if not most entrepreneurs and small businesses lease the property or building where they operate. Over time, this arrangement will only enrich the landlord, especially as certain high-traffic commercial properties command a hefty premium. Depending on the needs of the business, management should consider owning its underlying property. This way, the company doesn’t pay rent expenses but rather builds equity in its investment property. Owners could rent out unused space, organically creating multiple revenue streams.

Young People

According to multiple real estate investment trends reports, the homeownership rate among millennials is conspicuously lower than older demographic categories when adjusted for age. Beyond economic factors such as student loan burdens and stagnant wages, studies show that cultural shifts related to delaying marriage influenced millennials to put off home purchases. However, making real estate investment a priority puts buyers in a much better position financially as they will be more prepared to strike when the opportunity arrives.

Families

As young people venture into the next stage of their lives and start families, it becomes crucial to have real estate holdings. Naturally, with little ones to take care of, your ability to save money for your future retirement encounters serious constraints. Many parents prefer to accumulate funds for their children’s college education. These expenditures add up. However, if you buy your home instead of renting, you’re basically paying yourself.

Peer Groups

While families and businesses are encouraged to invest in real estate, peer groups can do the same thing. Pooling resources to get the best results has long been a good business model.

Single Parents

Single parents have the toughest job in terms of childrearing. But just like the situation for families, it’s imperative that single parents consider property investment options. The responsibilities involved in caring for a dependent rack up serious expenses. Therefore, you want to make sure you are paying yourself at every opportunity. A real estate investment could provide a level of stability and comfort for your child that proves to be instrumental in their development.

Seniors

According to a report, a large majority of older households — 75% of households age 50 and over and more than 75% of households age 65 and over — own their homes. Homeownership gives seniors a leg up in the property investment game as they can rent out their homes, generating income to live in smaller, more manageable apartment buildings. In fact, Harvard states in the same report that after age 80, renting becomes much more common.

Best Real Estate Investment Platforms

While the do-it-yourself industry has taken off over the years, when it comes to rental property investment deals, you want to make sure to consult only the highest-rated resources. Below is a list of Benzinga’s best real estate investment platforms.

  • securely through Arrived Homes's website
    securely through Arrived Homes's website
    Best For:
    $100 Minimum Investment
    Rating:
    Read Review
  • securely through Nada / Cityfunds's website
    securely through Nada / Cityfunds's website
    Best For:
    Accredited and Non Accredited Investors
    Rating:
  • securely through Fundrise's website
    securely through Fundrise's website
    Best For:
    Beginner Real Estate Investors
    Rating:
    Read Review

    This is a testimonial in partnership with Fundrise. We earn a commission from partner links on Benzinga.com. All opinions are our own.

  • securely through Yieldstreet's website
    securely through Yieldstreet's website
    Best For:
    Diverse range of alternative assets
    Rating:
    Read Review
  • securely through First National Realty Partners's website
    securely through First National Realty Partners's website
    Best For:
    Commercial Real Estate Investors
    Rating:
    Read Review

The Ultimate Way to Generate Wealth

Although making your first real estate investment can be a challenging step, it’s also powerfully rewarding. Not only that, this one move can put you well ahead of the game as you will spend your time building wealth instead of making someone else rich.
Better yet, anyone can participate in property investments, whether young or senior, individual or business entity. This is a tough market to navigate, even for professionals. Explore all your options, keep saving for your goals and when you need help, get it.

Check out our best options for real estate investments below. Start investing today!

Frequently Asked Questions

Q

What is the best real estate investment for beginners?

A

Typically, REITs are the most appropriate for beginners. You can buy REIT stocks like you would any other common stock. You gain access to an enterprise for a fraction of what it would cost if you were to go solo.

Q

What are the four types of real estate?

A

The four types of real estate are residential, commercial, industrial and vacant lots (land).

Q

Should you invest in real estate?

A

Investing in real estate is a decision that depends on factors like financial goals, risk tolerance and market conditions. It can be profitable because of appreciation, rental income and tax advantages but also carries risks such as market fluctuations and property management challenges. Thorough research, consideration of long-term financial objectives and professional advice are crucial before making real estate investment decisions.

Accelerate Your Wealth

Arrived Homes allows retail investors to buy shares of individual rental properties for as little as $100. Arrived Homes acquires properties in some of the fastest-growing rental markets in the country, then sells shares to individual investors who simply collect passive income while waiting for the property to appreciate in value over 5 to 7 years. When the time is right, Arrived Homes sells the property so investors can cash in on the equity they've gained over time. Offerings are available to non-accredited investors. Sign up for an account on Arrived Homes to browse available properties and add real estate to your portfolio today.

About Joshua Enomoto

His distinct writing style of distilling convoluted data into relatable and compelling narratives has earned him recognition among several investment-related publications.

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