How to invest in real estate - 3 ways that offer a chance to make money and build wealth
As the wise men once said, "nothing ventured, nothing gained," sometimes, you have to dare to spread your wings beyond what is considered safe. This adage should be taken with a pinch of salt when it comes to an investment, as your investments can tank, leaving you in financial turmoil. However, Real estate investment opportunities have stood the test of time and is a fall-back favorite of the savvy investor. Once you decide to dabble in real estate, you can then explore some of the available options.
Qualified opportunity fundsInvesting in Qualified Opportunity Zones (QOZs) is all the rage in Real Estate circles. This real estate investment opportunity was established by the TCJA (Tax Cuts and Jobs Act) in 2017, which demarcated specific marginalized zones that would benefit from the fresh injection of investments from investors. These 8,700 zones spread across the 50 states and territories of the USA would only get this investment through certain particular purpose vehicles known as Qualified Opportunity Funds (QOF).
The investors who use these QOFs would, in turn, enjoy tax breaks and deferrals depending on how long they hold on to their investment, with the minimum time being five years. For example, suppose you have recently liquidated some assets and invest in a QOF before 180 days lapse. In that case, you stand to have any capital gains realized reduced by 10% in five years and by another 5% in seven years with deferrals of up to 9 years. You will also not be required to pay any capital gains tax on investments held in a QOF for over ten years. QOFs are very strategic in that they can invest in QOZs in different geographical locations, minimizing risk if some disaster occurs in a specific region.
REITsReal Estate Investment Trusts were the latest entrant in the real estate investment before QOFs. REITs can invest in mortgages, properties, or a mix of both. Most are publicly traded, but some are in non-traded form. You buy shares as you would for any other listed company with the added consolation that the REIT's performance is not influenced by the volatile stock market but by the more stable real estate market. You then receive dividends depending on the Performance of the REITs. However, SEC (Securities and Exchange Commission) discourages investment in non-traded REITs as they have high charges, are unregulated, can be hard to liquidate, and can become worthless overnight. Thus, it is advisable for the budding investor to only engage in publicly-traded REITs.
House FlippingThis is ideal for those who want to take a more active role in their Real estate investment journey. You identify a promising property that has seen better days; you spruce it up and "flip" it for a profit. To do this successfully, you need competent personnel to help you pinpoint properties that meet the criteria, undertake repairs within your budget, and meet the specified building code standards. A skilled building contractor is indispensable for this means of real estate investment.
As you invest in real estate, QOFs are an appealing option as they reduce your risk; REITs are also recommended if you don't want to get caught in the nitty-gritty of real estate. But if you have the time and trusted professionals to guide you, house flipping can be exciting and lucrative.