Real estate investing is a rewarding endeavor for many. Its benefits are manyfold: Owning real estate contributes to diversifying your portfolio, building a robust retirement fund, creating passive income, and ultimately achieving financial freedom.
Fortunately, there are many ways to invest in real estate. If you don’t want to pursue the traditional path by purchasing a rental property, you can explore alternative types of real estate investments. Real estate investors could join an investment group via online real estate platforms, contribute to a real estate investing trust, or even turn an empty basement into an income-generating independent dwelling unit.
In this article, we cover some of the best real estate investments in 2024.
Real Estate Investing Trusts (REITs)
Real Estate Investing Trusts (REITs) are companies that own and operate real estate properties. They are comprised of at least 100 shareholders who pool their capital and collectively purchase properties. The individual investors do not have to take responsibility for buying or financing the properties since the REIT is typically managed by a professional team; however, all investors benefit from the profits.
Real estate investment trusts can be publicly traded, which makes them accessible for investors and more liquid than a traditional individual real estate investment. An REIT portfolio can also include multiple types of real estate, such as multifamily properties, single-family homes, commercial offices, warehouses, and self-storage units.
Pros
Cons
Steady passive income Diversified portfolios can protect investors from economic concerns that affect particular property types. Trade on public exchanges make REITs liquid assets that are easy to buy/sell. Less expensive than real estate mutual funds
Little capital appreciation Slow growth, as only 10% of taxable income is permitted to be reinvested into new investments. Management and transaction fees could be high.
Real Estate Investing Groups (REIGs)
Like REITs, Real Estate Investing Groups (REIGs) are also companies consisting of investors who pool resources to buy real estate. However, REIGs either don’t qualify to be REITs or choose not to be and are thus not subject to the rules that govern REITs. They are also less liquid than REITs because they aren’t traded on stock exchanges but are rather funded by individuals directly investing their capital.
A REIG consists of two or more private partners/shareholders who buy, sell, and manage real estate properties, and they can be structured in a variety of ways. The activities of REIGs are not heavily restricted, and they can flip, finance, or lease properties to make a profit as they see fit.
Pros
Cons
High-net-worth investors can invest in real estate without the responsibility of management. Diversified real estate projects and lower risk Fewer limits on operations
There is limited liquidity if you want to withdraw your money. Fees may limit profitability. If the group lacks skilled leadership or wealth management, it may make poor investments
Residential Real Estate
Properties used for an individual’s or family’s personal residence fall into the category of residential real estate. Residential properties include a range of property types, including multifamily complexes, single-family homes, condos, duplexes, townhomes, etc.
Residential rental properties are desirable due to their potential to appreciate. Using the buy-and-hold strategy, investors can purchase residential homes in up-and-coming markets and then reap the benefits years later when the property has substantially increased in value.
However, investing in residential properties does require management expertise, unless you hire a property management company to take over this job. Landlords are required to adhere to strict health and safety standards and must fill vacancies with thoughtful marketing and strong tenant relations.
Pros
Cons
Require less capital than commercial properties and other types of real estate. Long-term capital appreciation Less strict zoning laws
Management expertise or property management fees required. Risk of vacancies Unexpected expenses (e.g., evictions) can erode profitability.
Commercial Real Estate
Commercial real estate is a type of real estate used for business and commercial purposes, such as office space, restaurants, hotels, warehouses, retail stores, and small businesses. The four main types of commercial real estate are industrial, office, multifamily rentals, and retail.
Commercial landlords have the potential to generate large profit margins and can be as involved—or uninvolved—as they like in paying the additional expenses associated with the property, such as taxes, insurance, and maintenance of the property. Single net leases can be used if the tenant is only responsible for paying the rent plus property taxes, double net (NN) leases add on insurance, and triple net (NNN) leases make the tenant responsible for all the above plus maintenance costs. It’s up to the landlord how the agreement should be structured.
Pros
Cons
High leasing rates and monthly cash flow More stability is possible since commercial leases are longer than residential leases on average. Capital appreciation
Complex legal regulations Higher risk if economic factors lead to business failure High cost of renovations for new tenants with specialized needs for their trade.
Flipping Properties
Flipping properties is a real estate investing strategy in which an investor purchases a lower-value home, renovates it, and then sells it for a profit shortly thereafter.
House flipping requires substantial planning and expertise in renovating. Investors should not underestimate the time or funds required to pull it off—professional help is a requirement unless you’re an experienced contractor yourself. However, acknowledging these challenges, a property that has been properly flipped in a hot market can appreciate substantially due to your renovations, added amenities, and other improvements.
Pros
Cons
High potential for profit Can be done part-time while you work or pursue other investment opportunities. There are many options for renovation based on local market demands.
Financial risk increases if the investor pays more than 70% of the after-repair value for the property. Capital gains taxes limit profits. Time-consuming Professional builders, plumbers, and carpenters are required.
House Hacking
House hacking is when an investor purchases a property with multiple units and lives in one while renting out the other(s). This strategy also includes homeowners who add accessory dwelling units (ADUs) to their homes by converting their basement, attic, or spare rooms into a livable space that can then be rented out.
While house hacking, you might have to share a kitchen or bathroom with your tenant, which some investors may not prefer. Adding an ADU with its own kitchen and bathroom is an option, but costs more. The benefits, however, are worth it for many—you can cover most of your mortgage and property taxes from the cash flow you receive from your tenant/roommate, without having to purchase and manage a separate investment property and all while building equity in your home.
Of the many creative real estate investing strategies, house hacking can be highly successful. If you’re willing to temporarily sacrifice some space and privacy for the security of your financial future, it’s a great way to start investing with your primary residence right away.
Pros
Cons
Eliminate your mortgage payments using cash flow. Build equity in your home. When you eventually move out, you’ll have an established tenant and an additional unit to start renting. Qualify for lower interest rates and keep your owner-occupied loan when you move out.
Privacy and space may be limited. Adding ADUs can increase costs. Maintenance is a 24/7 responsibility.
Online Investing (Crowdfunding Platforms)
Online investing via crowdfunding platforms like Fundrise and YieldStreet make real estate investing accessible to anyone. They allow accredited investors (and sometimes even non-accredited ones) to invest passively in opportunities that might otherwise be unattainable without the help of others. Any real estate investor can receive passive income while splitting the costs with other investors and avoiding the responsibilities operating and managing a property themselves.
Pros
Cons
Diversify assets independently from the stock market. Low minimum capital requirements Gain truly passive income
High fees Risks may be poorly understood by groups of disparate investors. Real estate crowdfunding has only existed since the JOBS Act passed in 2012, so many companies involved don’t have a long history.
The Best Real Estate Investments Vary by Market
We’ve given our two cents as to which types of real estate investing are some of the bests in 2024. But remember that the type of investment best for you will depend, in large part, on your specific local market. Some types of investment are impossible in certain markets and perfectly feasible in others. Be sure to dedicate enough research to the area you want to invest in before choosing an investment type.
Conclusion
Navigating the dynamic landscape of real estate in 2024 will require a diversified approach. For this reason, having a variety of investment strategies up your sleeve is always smart investment advice. To thrive in evolving markets, investors who are flexible and adaptable will be better prepared to seize arising opportunities. Hopefully this article has given you a better idea of the investing strategies available for you to achieve success in 2024 and beyond.
