Real estate has always been a popular form of investment, but is it a savvy way to use your funds in 2021? With societal changes underway, experts are already predicting how the property market will evolve. The work-from-home revolution may drive people out of the cities and towards more rural locations, for example, while the economic impact of the COVID-19 pandemic is likely to see a flurry of sales, as well as purchases.
For investors, the accessibility of low-rate mortgages, cheap sales and high demand could make real estate a lucrative investment opportunity in 2021. To see what your options are, take a look at these four different ways you can invest in real estate:
1. Capital Increase
Perhaps the most common way to make a profit on real estate is to purchase a residential property, live in it until the value increases, and sell it at a gain. In fact, this is what millions of homeowners all over America do. Although this can be a viable way to invest, it does have some drawbacks. If you love your family home, for example, you may be reluctant to sell up when the market improves. Similarly, you could wait years for the value to significantly increase, which means you might wait a while to realize your return.
2. Rental Income
If you have the funds to purchase a property, either outright or via a buy-to-let mortgage, you can generate rental income by letting it out to tenants. Depending on how the market changes over time, you could also increase your capital, if the value of the property increases. As a result, buying and renting out a property has the potential to deliver short and long-term profits, which is an attractive prospect for investors.
To gauge whether an investment is worthwhile, it’s useful to carry out financial assessments. When you calculate the internal rate of return of an investment online, for example, you can get an accurate idea of how profitable your potential investment opportunity is likely to be.
Furthermore, you can buy or rent either residential or commercial properties (or both), which means you’ll have a wider variety of real estate in your portfolio. This can help to protect your investments from external forces and potentially reduce the risks associated with your portfolio.
3. Flipping Properties
Buying real estate that’s in need of repair, carrying out work on it and putting it back on the market can be a highly effective way to make a profit. Known as ‘flipping’, many part-time investors choose this method to generate an impressive return. However, you will need to ensure that you inspect the property carefully prior to purchasing it, as underestimating the amount of work required could drastically reduce the amount of profit you make. In fact, hidden problems and extra work could even mean that you make a loss on your investment.
If you’re able to carry out repair works yourself or you have reliable contacts in the construction industry, this can make flipping properties and even more profitable option, as the cost of renovating can be reduced.
4. Real Estate Investment Trusts
A real estate investment trust, or REIT, can be a good option if you want to profit from the property marketing without buying, selling or renting real estate yourself. An REIT is a commercial organization that owns, builds or manages income-producing properties. When you invest in an REIT, you can generate income via dividends, but the value of your investment can also increase over time, providing the REIT performs well.
REITs can be publicly traded on the stock market, but there are also private options available. If you’re looking for a way to diversify your investment portfolio or you want to benefit from the market but don’t have the funds to buy a property, an REIT can be an effective way for investors to make an impressive profit.
Is Real Estate the Right Investment for You?
Although real estate can be a great form of investment, it is not necessarily right for everyone. By assessing your personal financial situation and determining what level of risk you’re willing to take, you can decide whether real estate fits your investment goals and needs.
Of course, getting professional advice is always advisable before making any major financial decisions. With help from a certified financial adviser, for example, you can explore a range of options and determine which ones are best suited to your investment strategy.
