What is real estate investment and do I need it?

Written by Eric Ebbert CFP®, MBA

On May 24, 2021

Investors have several options in different sectors in which to invest funds to grow their wealth. One sector that will always be around is real estate. People will always need housing, and there will always be a housing market built around it. As such, investors have the opportunity to invest in real estate to grow their wealth

However, you might be wondering if this is right for you. Here is what you need to know.

What is real estate investment?

In short, real estate investment is the practice of investing your funds in real estate with the goal of growing your wealth over a short or long period of time. There are many different avenues in which one could invest in real estate, including:

  • Flipping homes — There is a reason there are several shows on television about people buying damaged or undervalued homes, repairing and renovating them, and then selling them for a profit. It works.

    Flipping houses is more of a short-term strategy, but some flippers have to hold on to homes for a while to let them build value. This is actually one of the biggest risks with flipping: You run the risk that you may not be able to unload the property at a profit. Plus, the longer you hold a home, the longer you have to pay its mortgages and other bills.
  • Rental properties — Owning a home and renting it to tenants is a great way to generate revenue. However, being a landlord is a big responsibility. You will be responsible for things like paying the mortgage, taxes, and home insurance and maintaining the property.

    Many landlords use a property manager to handle everything with their tenants and manage the home, but still, this can be expensive on its own and cut into your profits.
  • Real estate investment trusts (REITs) — REITs are a common vehicle investors use to generate wealth from real estate investment. A REIT is a corporation or trust that is formed to use investor funds to purchase, manage and sell properties that generate income.

    REITs are bought and sold on major exchanges like stocks and exchange-traded funds (ETFs). This makes it easy to trade them as long as there are interested buyers on the market.
  • Real estate investment groups (REIGs) — An REIG is comparable to a mutual fund, but it is used for rental properties. Investors who want to own rental properties but do not want to be landlords may want to invest in REIGs.

    For example, in an REIG, a company or organization will build or buy houses or apartments. Then they allow investors to purchase ownership through the REIG, thus becoming owners but not landlords or managers of the property. In exchange, the REIG takes a percentage of the rent payments.

Talk to a ProVise CFP® professional about real estate investment

At ProVise Management Group, our CERTIFIED FINANCIAL PLANNER™ professionals can get to know you and your current financial circumstances, goals, risk tolerance and personal values to help you develop a plan that works for you. We can also create a written plan for you at a fiduciary standard of care. All our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 100% of the fee paid.

Are you ready to talk to a professional about real estate investment? Contact ProVise today to schedule a complimentary consultation.

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