Best Place to Invest in Real Estate

There are dozens of ways to invest in real estate, but finding which investment vehicle aligns with your goals is more important than chasing the “best” market or return.

All too often in real estate, there is a notion that to be a good investor you must find what are considered “the most lucrative markets” or investments with “the highest returns.” While it’s essential to find a market that supports the property and produces a good return, none of that matters if you don’t have the time, knowledge, or capital to pursue it. Rather than chasing the “best,” instead concentrate on finding what is best for you based on your investment goals, financial means, risk tolerance, and time availability. Let’s dive into the things that matter when determining the best place to invest.

Time is by far our most valuable resource. Even though we all have 24 hours in a day, some people have more time than others. With the never-ending demands of work, family, and friends, our time and attention are pulled in several directions. Before starting a new venture such as real estate investing, it’s important to assess your current schedule and determine how much time you can dedicate to this business. There is a big difference between having a few hours per week to review investment opportunities, company reports, or work with contractors, tenants, or managers, compared to just a few hours per month. Rather than pursuing an investment strategy because it’s the “best” right now, align the investment vehicle with the time you have available to spend.

If you are short on time and are looking for more passive investment opportunities, it may be best to start by investing in REITs, real estate exchange-traded funds (ETFs), or if you are an accredited investor, in real estate crowdfunding. These avenues of real estate investing are pooled investments in which your money is spread across a company that owns several different investments, or one larger investment. You don’t play an active role in the acquisition or management of the property, and these investments require less time than finding and managing your own real estate investment would. Passive investments can require just a few hours of your time each week in learning about the investment strategy, reviewing opportunities, or company dividends and yields.

Active investments such as buying and selling mortgage notes, investing in rental properties, flipping houses, or buying tax liens or tax deeds in which you have an ongoing role in finding, acquiring, and managing the investment, can require five hours or 40 hours a week depending on how you manage them and how many you have.

It ultimately boils down to the time you have available and what you want to accomplish with your investment properties. Investing in any avenue takes time, and you must have the time available to dedicate to it if you want the possibility of seeing success.

The funds you have available to invest will greatly determine the avenue of real estate investing you can pursue. While there are ways to actively invest in real estate with little to no money, most ventures will require money — with some requiring more than others. If you’re tight on funds and don’t have a lot to invest, REITs or real estate ETFs are by far the best way to go. There is no minimum investment — you simply purchase the desired number of shares for the ETF or REIT through a brokerage account according to the funds you have available to invest.

Actively investing in commercial real estate (CRE) is by far the most expensive method of real estate investing because properties range in value from a few hundred thousand dollars to millions of dollars. CRE can be retail, multifamily, industrial, mixed-use, or office space and in most cases produce cash flow from renting the space with a lease. If you want to find and manage your own CRE investment, you should be prepared to have 15%–25% of the purchase price as a down payment as loans for these types of properties could range from tens of thousands to hundreds of thousands of dollars.

Residential real estate does require funds in order to invest, but the amount of money needed can vary widely. It largely depends on what you are investing in. For example, there are ways to invest in tax liens or tax deeds with just a few thousand dollars, or you can purchase a residential rental property by putting tens of thousands of dollars down. The higher the property value, typically the higher the upfront investment will be. There are cheap ways to invest in real estate, but most will trade low upfront cost for time and effort, so these options need to be carefully weighed before deciding which investment avenue makes sense for you.

Robert G. Allen, the author, investment advisor, and real estate investor, said, “Without knowledge, and a workable plan, you are gambling, with little or no chance of success.” If you want the opportunity to succeed, you have to learn the ropes. Immerse yourself in the real estate niche you decide to pursue and learn every possible thing about successfully investing in that venture. This will help you develop a plan of action and determine the time that will be needed to hopefully see success in your investment. You want to understand the common terms, where to find investment opportunities, how to analyze your return on investment and the quality of the investment, as well as the steps involved in buying or managing the investment before you commit yourself or your money. There are dozens of paid or free resources available to help you along your educational journey of real estate investing, like our posts here at Millionacres. Just remember, as you acquire the knowledge, don’t forget to take action on what you’ve learned.