"Wide diversification is only required when investors do not understand what they are doing," is a sentiment associated with investment guru Warren Buffett. Thus, if you try out an investment avenue and prosper, it makes more sense to continue investing than trying out investments in uncharted waters. Real Estate has been a staple for investors since time immemorial, so it follows that it may be a very lucrative venture if correctly done.
If you are looking to jump on the real estate gravy train, consider these options:
This means of investment was established by the Tax Cuts and Jobs Act 2017 and is basically a tax perk that enables investors to invest in specific designated distressed communities. These investments benefit the community and spur development, and these investors get tax breaks and deferrals. So if you are flush from selling off an asset and want to reduce your capital gains tax liability, you should consider investing in qualified opportunity zones in 2021 and enjoy a tax deferral on your original capital gains until 2026. There are additional incentives if you hold your investment for five years, and if you hold on for ten years, you will owe no capital gains on any additional appreciation since your payment in 2027.
Invest in Real Estate Investment Trusts (REITs). These are shares in companies that develop real Estate where you help them raise capital and get rewarded with dividends. They usually pay high dividends and are ideal for planning a retirement nest egg; you can reinvest these dividends into more shares. REITs can be publicly traded, with non-publicly traded REITs being challenging to sell and harder to value. However, publicly traded REITs only need a brokerage account to purchase. Therefore, publicly traded REITs are recommended for new investors.
These are bespoke investment vehicles that match investors with real estate developers. They operate similarly to Prosper and Lending Club, which lend money for personal reasons, e.g., weddings, home renovations, etc. The downside of these platforms is that some only lend to accredited investors as defined by the SEC (Securities and Exchange Commission). Accredited investors are those who have earned an income of more than $ 200,000($300,000 with a spouse) in each of the last two years, or have a net worth of more than a million dollars, not including primary residence. If you don't meet these requirements, you can check out Fundrise and Realty Moguls.
You can get a fixer-upper, repair it and sell it at a profit. You need a competent contractor or valuer to enable you to pick houses that will not leave you in the red. You can cut costs by living in the house as repairs are ongoing; real-time supervision of repairs is a plus in this arrangement if you don't mind a little dust.
If you are antsy about full-time tenants, you can Airbnb your spare room or part of your home. Airbnb prescreens tenants to reducing risk, and you have a guarantee against damages. If you have meager DIY skills, consider investing in REITs or crowdfunding platforms. These investments can help to diversify your portfolio and increase revenue streams.
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