What is the first thing that comes to mind when you think of real estate? For many people, it’s purchasing a home. Yet for sophisticated investors around the globe, real estate is regarded as one of the best alternative investments due to its high returns and low risk.
Former U.S. President Franklin D. Roosevelt encouraged investors to buy real estate saying, “Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.”
In fact, real estate provides a wealth of investment opportunities depending on a person’s goals, time horizon, risk tolerance, tax situation, and desired level of involvement. As you consider how to incorporate real estate investment opportunities into your portfolio, we hope you keep these considerations and options in mind.
Choosing Your Flavor of Real Estate
One of the first decisions you will make when investing in real estate is selecting the type of real estate. Here are some of the most common types of real estate investors can choose from:
- Residential Homes - When you purchase a home or vacation property to live in, your return will be through capital appreciation, as you won’t generate income on these properties. However, if you purchase a home with the intention to collect rental income, these homes can be great investments.
- Commercial Offices - When the economy is running well, office properties can generate substantial rental income. In fact, they are often an investor’s “flagship” real estate investment thanks to high-quality, well-paying tenants (ie. businesses). According to Investopedia, office properties “tend to be, on average, the largest and highest profile property type.”
- Retail Properties - Retail leases are generally long term, which makes investing in retail a fairly stable choice for buy-and-hold strategies. These investments perform best in thriving markets.
- Industrial Properties - Industrial real estate typically requires a smaller upfront investment due to their generally simpler designs and also boasts lower operating costs. Since many are used as warehouses or manufacturing plants, proximity to major transport routes is a great factor to look for when investing.
- Apartments - Since people always need a place to live, multi-family residential properties typically provide good, consistent rental income. However, you will need to consider the operating costs when choosing your investment.
- Others - In addition to the real estate options listed above, there are a variety of niche real estate investment opportunities, including hotels, Airbnb rental properties, wedding venues, parking lots, and other mixed-use buildings.
Ridge 7 – Durban, South Africa
Understanding Real Estate’s Long Time Horizon
Real estate is known as an excellent long-term investment, which makes it the superior choice for investors who prefer passive, buy-and-hold strategies that will help them achieve their long-term goals. Basically, if you don’t have the time—or would prefer to use someone else’s time—to make your money work for you, real estate investments are an excellent choice.
In the short term, real estate investments do generate rental income, which can be a steady stream of regular cash. But nearly all investors agree that holding real estate investments long term is the way to go.
Illovo Central – Johannesburg, South Africa
Investing in Personal vs. Private Equity Real Estate
One of the first questions to ask yourself is how involved you want to be in your real estate investments. When you invest in personal real estate, you directly purchase a real estate property and become responsible and liable for owning and operating the property––dealing with real estate agents, lawyers, accountants, banks, property managers, the IRS, and all of the regular tax and legal compliance requirements.
While solo investors can be successful, there are significant operational requirements and huge time commitments required to maximize profit. For this reason, most people prefer to partner with other savvy investors to create a pooled investment to spread their risk, leverage other people’s money, and benefit from their team’s knowledge. Partnering with other investors means significantly fewer costs up-front and a smaller initial investment.
Investing in private equity real estate is a simple, more lucrative strategy because you are combining the best of both worlds. On one hand, you’re investing in real estate. On the other hand, you’re co-investing with other sophisticated investors, reducing your risk and increasing your purchasing power. To sweeten the deal, you get your very own professional real estate investment manager who will take care of all the details from start-to-finish. All you have to do is watch your money work for you.
Incorporating Real Estate Into Your Portfolio
Now that you know more about a variety of real estate investments and the myriad opportunities they can provide, it’s time to determine which investment is right or you. Subscribe to learn more about which real estate investments will make you the most money.
