Last Updated on February 24, 2024 by Kimberly Crawford
There are many types of investing strategies, as many of us are already quite aware. As we get further and further into 2024, it’s probably not a shock to hear that the real estate market is one of the few aspects of the global economy that isn’t totally faltering right now.
With that in mind, we do seem to be approaching a recession, as much as most of us would rather that not be the case of course.
Thanks to these revelations, it’s become clear to many of us that we need to start thinking outside of the proverbial box as far as investing is concerned. That’s where something like real estate investing can come into play.
If you’d like to learn more about it, whether that’s what it is or how the process works, then make sure to stick around! We’ll be covering all of that and more today.
What is Real Estate Investing?
Of course, the biggest question at hand is this: what is real estate investing, anyway? What makes it so different from other forms of investment, and is it something that really works even in a recession? That’s what we’re taking a look at today, naturally.
Simply put, this type of investing is the practice of purchasing, owning, managing, and/or selling real estate assets for the purpose of generating income or building wealth. This can involve buying and renting out residential or commercial properties, flipping houses for a profit, investing in real estate investment trusts (REITs), or participating in crowdfunding platforms for these sorts of projects.
This style of investing can be a lucrative way to diversify a portfolio and build long-term wealth through property appreciation and rental income, but it will depend on what path you decide to take as far as the process goes. Let’s examine what that could look like.
How Does it Work?
To a certain extent, the specifics of how it works will depend on your goals when you decide to invest in properties. Are you aiming to generate wealth over time via renting properties out, or are you intending to flip the ones that you purchase? That will play a large role in what the process looks like, so you’ll want to consider that before you take any concrete steps.
You can get an idea of how the process works as a whole on this page if you’re curious. The important thing is that you’ll need to decide which form of real estate investing you’re going with. Once you do that, you can look towards getting a proper start. Let’s take a look at some common terms that you’ll be facing.
Rental Properties: More often than not, investors end up purchasing residential or commercial properties and rent them out to tenants. After all, rental income provides a steady stream of cash flow, and property appreciation can lead to long-term wealth accumulation. It’s a solid way to invest in real estate if you’re willing to take on some of the more difficult parts of the job.
Fix and Flip: You’ve likely heard of house flipping before. When doing this, investors purchase properties in need of renovations, make improvements to increase their value, and then sell them for a profit. It takes time, work, and commitment, but it can be lucrative in some cases.
Real Estate Investment Trusts (REITs): These are a bit more complicated than the previous two, but that doesn’t mean they’re not a valid option.
Investors can buy shares in publicly traded REITs, which pool funds to invest in various types of real estate, such as office buildings, shopping centers, apartments, or hotels.
REITs typically pay out dividends to shareholders, as you can read about here: https://www.cambridge.org/core/journals/journal-of-financial-and-quantitative-analysis/article/abs/real-estate-investment-and-portfolio-theory/48BC67DB6DA9446FD68E0CCAD40068F0.
Real Estate Crowdfunding: As opposed to the other methods, which have existed for a long time, this is a bit more of a modern invention. You see, investors can participate in crowdfunding platforms that pool funds from multiple investors to finance real estate projects. This allows individuals to invest in real estate with lower capital requirements and diversify their portfolio, but it does require some know-how with the crowdfunding platforms in question.
Overall, real estate investing involves conducting market research, performing due diligence on properties, managing properties (if necessary), and monitoring market trends to make informed investment decisions that align with financial goals. All of this is important to think about before you take the plunge.
Real Estate and Recessions
Making any sort of financial decisions during a recession can be intimidating. This is certainly the case when it comes to something like investing in real estate. Is it worthwhile? You can get an idea of what to expect in this article if you want some examples, but we’ll be covering it as well of course.
Our initial gut instinct may be to avoid these types of large purchases during times of economic strife, but something to keep in mind is that these can also become opportunities if we allow them to. There are just some cautionary measures to take if you do intend to invest in real estate in times like we’re experiencing right now.
For example, in uncertain economic times, it is important to prioritize properties that generate positive cash flow. Rental properties with stable tenant occupancy and consistent rental income can provide a steady stream of cash flow even during a recession, which can prove to be truly invaluable for many landlords.
Additionally, investing in properties that require renovations or improvements can present opportunities to increase their value and generate higher returns once the market improves. Look for properties with potential for improvement and a clear strategy for adding value if you’re intending to start flipping homes.
Overall, while it isn’t always easy to take that first step and decide to make investments in real estate, it can prove quite fruitful even during recessions. In fact, they can provide excellent opportunities to make a profit if we understand how to navigate the market in the meantime!
