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There are many ways to invest, and one that has grown in popularity recently is real estate investing. This may conjure up images of “Selling Sunset” and million-dollar properties.
But Charles Clinton, cofounder of online investment platform EquityMultiple, says there are many ways to get involved in real estate investing as a way to diversify your investment portfolio and potentially be an additional source of income.
Clinton has five tips that anyone considering real estate investing should remember.
1. Use real estate as one component of a diversified portfolio
Clinton says that people include real estate investing as part of a portfolio across asset types, also known as a diversified portfolio. Part of the diversification process is deciding what kind of real estate investment is right for you since each time comes with its own risks.
“Assess what’s right for you based on your personal goals and risk tolerance,” Clinton says. “What role do you want to play in the process, and how much of your portfolio do you want to dedicate to real estate?”
2. Consider REITs for a hands-off approach
You might be interested in investing in being a partial or full owner of a property that’s an apartment, single-family home, industrial warehouse, or commercial building.
The cost to invest in and maintain a property can vary depending on the location and market conditions. This can include a high investment in money and time, though you can also invest in real estate using real estate investment trusts, which won’t require you to be a landlord.
3. Think carefully about the location of your property
You also have the option of buying a physical property and renting out part or all of it; however, choosing property for real estate investing is very different from choosing where you want your current or forever home.
“You choose your home where you want to live and work, but there’s no guarantee that it will appreciate in value,” Clinton says. “If you’re investing in property, you’re not limited to where you want to physically live or work.”
4. Look for high-value opportunities
Another consideration is how to invest in real estate that’s being built in an intentional way.
“The goal of investing in real estate is to make money and usually that involves increasing rents,” Clinton says. You can also invest in buildings that are increasing the quality of the tenant experience with additional amenities so that increase is justified.”
5. Remember, you can’t predict the market
In a market where interest rates are rising and property values are down, Clinton says that this can be a good time to invest. But at the end of the day, you can’t predict the market.
“Unexpected things can happen at any point, and you can’t isolate your portfolio from all of the possible changes,” Clinton says.