Which investments are most profitable?

Can you recall a time when real estate wasn’t in the news?

It’s a head-scratcher, isn’t it? Everywhere you look, it seems like people are becoming millionaires by buying and selling properties…or at least talking about it. DIY home flippers, soaring demand for rentals, double-digital increase in home prices—real estate is always in the news.

It’s almost worth rolling your eyes: Make the right property investment decision and you, too, can be rolling in money! That’s just part of the story, though. Besides capital, real estate investors need patience, education, effort, time, and a bit of luck (AKA favorable market conditions) in order to make a sizable profit.

Below, we’ve chronicled the types of profitable property investments you could make to, ahem, one day possibly be rolling in cash.

Residential property

Purchasing residential properties and renting them out or selling them to homebuyers is the most common way for investors to make money. These include condos, vacation homes, townhouses, apartment buildings, single family homes, or Airbnb investments.

Keep this in mind: most rental agreements (aside from Airbnb-style rentals) span 12 months in the United States. The best part of investing in a rentable property: passive income. Of course, this isn’t without some drawbacks. The cost of ongoing maintenance and potential repairs likely will eat into your profits.

So important to not put all your eggs in one basket, as the old saying goes. Once you make enough profit, consider investing in multiple rental properties to generate a steady income.

Real Estate Investment Trusts (REITs)

Familiar with mutual funds?

Think of REITs as a mutual fund, but for investing in real estate. These are companies that own various types of commercial real estate, such as restaurants, malls, offices, shops, or hotels. Since REITs are listed on the stock exchange, you can buy a percentage of their shares.

The benefit here is that there’s low risk and fewer headaches since you’re not actually owning the property in this investment. What’s more, you get to diversify your portfolio in the process. Compared to other forms of real estate investments, REITs also offer you flexible liquidity.

Fix-and-flips

You might have a few fave pro house flippers from HGTV. YouTube is quite literally filled with thousands of amateur house-flipping videos—a guilty pleasure for people dreaming of flipping their own home or buying a house with an aesthetic that matches their taste. (Hey, we don’t judge!)

From the perspective of real estate investment, house flipping is a lucrative concept. Buy rundown properties, remodel them, and sell at a profit. What’s not to love? It sounds easy, but of course, it isn’t. The process takes a lot of knowledge and effort on your part to understand the local real estate market…not to mention the sweat equity, unless you’re prepared to pay a team of contractors to do all the work for you.

Crowdfunding

An emerging trend in the real estate market, crowdfunding is a new form of investing that can be applied to more expensive properties such as hotels. Such high-return investments were once reserved for the extremely wealthy. But thanks to crowdfunding, individual investors can own capital in these expensive properties. No hefty down payment needed!

This works similarly to crowdfunding in other spaces, where your money is pooled with a number of other investors to finance a major project (for example, a new hotel). You can invest your funds two ways: 1) either through equity, where you own a stake of the real estate asset, or 2) as debt, where you lend money invested as a loan. In return, you receive a proportional stake of the project’s returns—either the sales value increase or rental income.

Form a legal entity

As a real estate investor, it’s important to protect your personal assets. Experienced investors form a legal entity, usually a Limited Partnership (LP), to hold their real estate investments. If you ever need to declare bankruptcy, your personal assets won’t be at risk.

By now, you’ve learned about the different types of investments and which could be most lucrative given your personal circumstances. Whether you’re open to taking bigger risks, have the capital to make a big splash in the market, or if you’re hunting for a deal, we’re willing to bet there’s a property or a project out there for you.

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