Investing in real estate is a great way to build wealth and increase cash flow. Investments can be made in many ways, each with its own benefits and risks. Here are some options you should consider as a new investor.
Yearly rentals and other forms of long-term rentals are popular investment types. A tenant pays rent for a leased property that you own. Rental properties like this can be profitable financial investments because they benefit from tax deductions.
Rentals of short-term properties have become increasingly popular as an investment strategy. The properties are often rented out for short-term stays. However, they can take a lot more time and effort to manage and the labor may not be worth the additional income. The financial burden can also be unpredictable with these properties due to the fluctuation in income.
1031 exchanges allow taxpayers to postpone the payment of certain taxes on the exchange of like-kind real estate for mainly commercial-type investments. A qualified intermediary of 1031 Exchange Services is used to hold the property until they receive the other property, and then the intermediary completes the exchange to both parties. Deferring taxes and exchanging properties over time is how you build more equity.
House flipping can be lucrative, but also difficult for new investors who might be inexperienced in the process. While living on the property, flipping a house over the course of a year or two can be an easier alternative. You could also elect to turn the property into a rental after being flipped.
It can be easy to be overwhelmed as a new investor. There may be several types of investments that can suit your needs and goals. Research all the possibilities before deciding on properties that are right for you.