Buying and selling real estate is a popular form of investment driven by rapidly rising real estate prices.

There are many ways to get involved – from buying a property and renting it, to flipping houses, to certain investment products.

Investing in real estate can be a great way to make money as long as you know what you are doing

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Investing in real estate can be a great way to make money as long as you know what you are doingImage Credit: Getty – Contributor

Of course, no investment is 100% safe and the main risk with real estate is what happens if the market falls.

If house prices are falling rapidly, you could get an underwater mortgage and your home will have negative equity.

If you need the money fast, you may even have to sell short.

Other concerns include vacant rentals and tied up money when you need it.

Here are three of the most common ways to invest in real estate, as well as some of the top risks to be aware of.

Buying a rental property

One of the most obvious approaches to investing in real estate is to buy a property and rent it out.

Well done, the rent you ask can cover the cost of the mortgage and when you've paid it all off you will have a steady income.

Disadvantages include the hassle of managing tenants, the upfront capital required to pay a deposit, maintenance costs, and income gaps for vacancies.

If you don't feel like managing rents yourself, you can consider investing through a Real Estate Investment Group (REIGs).

These are small funds that invest in rental properties, for example by buying or building an apartment building or a group of condominiums.

Individual investors can own one or more units, but REIG takes on tenant management, maintenance and even the tendering of vacancies.

Risks with this approach include high fees and trust in the managers involved.

House freaks

There are two types of house flipping. The first is where you buy and sell real estate quickly, hoping to make a profit in the market.

This approach is quite risky, especially when prices are falling, and requires a lot of knowledge.

The second type of house flipping is when you buy a property, renovate it, and then resell it at a higher price.

This requires understanding which renovations are adding the most value and enough money to pay for upgrades.

Either approach could put your capital at risk in the event of a stock market crash, selling you at a loss or getting stuck on real estate you don't want.

Investment vehicle

You can capitalize on the real estate market without buying a home directly through investment vehicles and platforms.

One of the most common ways to do this is through a real estate investment trust (REIT).

In REITS, a trust uses investors' money to buy and operate real estate. This can be anything from rental blocks to shopping malls to corporate office buildings.

REITs are bought and sold on exchanges like stocks and shares, but the company has to pay 90% of its taxable profits as dividends, which means you should get a regular stream of income.

As with any investment, your money can go up as well as down, so one of the biggest risks is that the price of your REITs will fall and you will have to sell at a loss.

Another approach is real estate platforms and crowdfunding. Here investors are connected with real estate developers looking for financing.

The main risks here are that your money is often locked away for a long time and the fear that the projects might run into problems.

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source https://seapointrealtors.com/2021/08/07/how-to-invest-in-real-estate-and-risks-explained/

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