Invest in a vacation rental
Vacation rentals are becoming a popular real estate investment vehicle largely due to the rise of home-sharing companies like VRBO and Airbnb. A vacation rental can be a room or a home that's rented for a short term, often nightly or weekly. It can be a great way to generate cash flow.
The success of a vacation rental is largely based on the location, amenities, and quality of the property. Short-term rental demand in the area also plays a major role. Owning vacation rentals requires time spent managing online listings, communicating with potential renters, managing calendars for bookings, and ensuring check-in and turnover are handled effectively.
This type of rental property has a higher vacancy rate than other rental types and is restricted in some places.
Vacation rentals are best for the following investors:
- Those who have some investment funds saved and can allocate $5,000 or more to their investments.
- Those who own property in decent condition in a desirable area for vacation rentals and are willing to share or rent space. Always check your local laws to ensure short-term rentals like this are allowed.
- Those who want to earn cash flow and are willing to learn about, manage, and rent a vacation property.
Invest in commercial property
Commercial real estate (CRE) is used for business purposes, such as retail or office space. Industrial buildings, apartment complexes, mobile home parks, and assisted living facilities also fall into this category. Commercial real estate is costlier than residential real estate, often requiring a greater down payment. There's usually more property to manage, too.
Investors in CRE need to dedicate ample time to learning how to properly invest in and manage the asset class before finding, buying, and managing an asset. With the larger upfront cost and significant time and effort required, many choose to invest in commercial real estate through alternative methods, such as REITs, ETFs, partnerships, or crowdfunding.
Commercial property is best for the following investors:
- Those who have significant investment funds saved and can allocate $50,000 or more to their investments.
- Those who want cash flow or tax benefits from owning commercial real estate and are willing to dedicate time and effort to owning and managing the property.
Invest in real estate crowdfunding deals
Real estate crowdfunding connects accredited investors with investment opportunities. These deals pool money from multiple investors to fund a real estate investment. The asset is owned and operated by the sponsor and the sponsor's management team, making this a passive investment.
Investors get returns in multiple ways, including dividends and preferred returns over time. Crowdfunding is a risky investment option and many variables affect the quality of an investment.
If you're interested in this avenue of investing, take a look at our complete guide to crowdfunding to determine whether it's right for you.
Real estate crowdfunding is best for the following investors:
- Those who are accredited and have $500 or more available to invest.
- Those who can review commercial investment opportunities and conduct due diligence on the quality of the investment.
- Those who want higher returns than most other avenues offer and are willing to wait longer to receive them.
- Those looking for passive returns.
What's the best way to invest in real estate right now?
There are times when specific avenues of real estate investing may be better than others because of current market conditions, but rarely is there one "best" way to invest over the long haul. The current investment fad may not be the best investment in 10 or 20 years.
There's no perfect model for investing. People have different financial goals, means, areas of interest, and specialties.
If you hate managing people and have a poor eye for design, rehabbing probably won't be good for you. If you're short on time and can't consistently find and review investment opportunities, never mind manage one, maybe real estate ETFs or REITs are better.
In general, the goal of investing is to build wealth over time and find investment opportunities that provide stable growth, income, and returns. Make sure you understand how the investment works, including how the return is calculated, the costs associated with that asset type, the risks, and the factors that contribute to a quality investment over time.
No matter which investment strategy you pursue, always conduct due diligence on the quality of the venture and the viability of the overall return. Continue to educate yourself on how to invest in that avenue to ensure you pursue worthwhile investments.