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Many young families are interested in real estate investment as an additional source of passive income. While this sounds exciting, you should educate yourself as much as you can before investing to be successful. First, consider your options: buy a rental property and become a landlord, put your money in a pool with other investors to purchase a larger property, or invest in Real Estate Investment Trusts. Learning about these different options will help you understand what is right for you, which is always the most important thing.
Did you know that there are almost 44 million renter-occupied homes in the US, compared to 75 million owner-occupied homes? If you want to buy rental property on your own, you first need to analyze different markets and locations. Consider a property located in an increasing job market, near a city, or a good school district. These factors are going to affect the demand your property has for rent. You don’t want to buy a home and incur a lot of expenses and then realize nobody wants to rent in that area. Once you select the place you want, try to save for at least a 20% down payment to increase your purchasing power and have lower mortgage payments. You’ll want to have enough money every year to pay for your personal expenses and debt, as well as mortgage fees on property, taxes, and insurance. So using a tracking system is highly recommended! Buying rental property also means you become a landlord, and not all tenants are easy. You may need to do some handy work unless you consider spending money on a property manager. You could also invest in commercial or industrial properties or create a partnership with shared expenses (and profits). These options likely require more money upfront, and more management.
REITs are companies that own real estate and generate income. You can invest in REITs like a stock or mutual fund and receive dividends. These investments are highly liquid, unlike purchasing physical real estate. You might consider investing in REITs if you aren’t ready to commit to illiquid real estate investments. You can invest through different online platforms like DiversyFund and StreitWise. With DiversyFund, you can start with a low investment without a minimum income requirement. Remember to be patient, too, as it could take longer to see returns.
Compare the different options, look at different scenarios, learn as much as you can, and then you can make the decision that ultimately supports your lifestyle and goals. Whatever you decide to do, make sure that it is the right thing for you.