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What is the Safest Real Estate Investment?

Brent Davis - May 25, 2021

Safest Real Estate Investment

The global real estate market is massive and only getting larger.

While many people may only participate in the industry by buying or selling a property on usajrealty.com or by listing or finding a rental on UMoveFree, it is also possible to invest in the space.

It can be a great way to make money and real estate continues to be a popular investment for very successful individuals.

But just how safe are these investments?

While every single investment comes with some kind of risk, many investors will attempt to minimize this risk as best as they possibly can.

Safest Real Estate Investment

So if your goal is to make some money, but do so in a safe manner, which real estate investment is best?

Well, there isn’t a straightforward answer. It depends on the market you’re in your definition of safety and your education, knowledge, and experience.

Instead of focusing on one, it can be a good idea to evaluate numerous potential investments and judge how safe they generally are.

With that in mind, let’s take a look at some of the best safe real estate investment options and take a look at how safe they are.

Safest Real Estate Investment: Buying a Rental Property

 

Safest Real Estate Investment

 

Among the most popular ways to invest in real estate is to buy a property and rent it out.

If you have renovation and DIY skills, buying cheap homes and fixing them up, and renting them for a pretty penny is a great way to make some extra money.

This regular income will often cover the mortgage and then some, which means you often walk away with a pure profit every month.

Of course, you will need to be okay with handling tenants and be willing to complete maintenance as well.

A risk of renting out your property is not being able to find a renter to provide you income, or renting to a tenant that destroys the place or doesn’t pay rent consistently.

However, if you’re in an area with a lot of renters and a very low vacancy risk, a rental property can be very safe.

Also, if you simply can’t find a renter for the life of you, the home can be sold, too.

Before ever buying a property to rent out, it is a good idea to familiarize yourself with the rental market in your area and ensure it is strong.

Not only will a rental property give you income, but your home is also likely appreciating in value.

So if a hot market comes about, you could even opt to sell it at an inflated price and then start the process again with a new home.

Safest Real Estate Investment: Fixing and Flipping a Home

 

Safest Real Estate Investment

 

If you fancy yourself incredibly handy and capable in that regard, fixing and flipping is an option to consider.

This involves buying a home for a fairly low price, fixing it up, and then selling it for a profit.

Flipping houses can often get quick returns, especially if you are in a strong real estate market.

It takes a lot of cash upfront (for the down payment, as well as making upgrades and repairs), but can get you to cashback just as quickly.

This is also generally for those experienced in the space.

There are a lot of moving parts and costs involved, and lots can go wrong.

But if you know your stuff, work with professionals (home inspector, agent, etc…), this can be a very affordable venture and one that can have a high ROI.

Of course, the major risk here is not being able to flip the house.

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Many fix and flip buyers may not have the cash available to pay the mortgage for more than a few months, so not being able to find a buyer can put you in a tough spot.

Safest Real Estate Investment: Buy and Market a Vacation Property

People love to go on vacation. While the Covid-19 pandemic put travel plans on hold for the better part of 2020 and 2021, millions of people are looking forward to traveling soon.

A great way for real estate investors to capitalize on this is to buy a vacation property to rent out.

Many travelers are shifting away from hotels and renting homes or condos while on vacation.

Renting these out will generally only be for a few weeks/days at a time, but the income per day can often be much higher than traditionally renting a property.

A big part of a successful vacation property is marketing. In many areas, there are hundreds of homes that people can rent on vacation.

You need to ensure to get yours in front of the eyes of travelers and find ways to entice them to consider yours.

This can be through a unique theme, targeted ads, or a great price.

The safety of this option generally depends on your location and the quality/price of the home.

A vacation rental in Miami or San Francisco will likely do better than one in Cheyenne or Dover.

Even the location within the city can have an impact on how safe the investment is.

Safest Real Estate Investment: Invest in a REIT

A REIT (real estate investment trust) is another option for real estate investors.

Unlike the other options mentioned, this choice doesn’t involve a real estate transaction of any kind.

You essentially invest money in a company, and a company uses investor money to operate income properties.

They are bought and sold like a stock and pay investors dividends often.

This makes it a great way to get a little money, without having to do all of the work associated with managing and operating your properties.

This is generally a more long-term wealth-building option and not one that is going to make you a ton of money overnight.

Of course, the risk here is you are putting your faith in somebody else to make your money and do a good job, much like the stock market.

However, because you don’t need to purchase a property, the overall risk is still quite low.

Safest Real Estate Investment: Real Estate Crowdfunding

 

Safest Real Estate Investment

 

Crowdfunding has taken off in recent years as a way for companies to fund their products and ideas, without having to go the traditional route of offering up a slice of their business for the money.

Naturally, the real estate market has picked this up as well.

This process will involve you investing with many other people into one larger real estate deal that is generally organized by a developer.

Everything is generally handled on an online real estate investing platform and is quite simple.

This online platform essentially acts as the middle man and connects you with the developer and ensures everything is fair and legit

You will still need to invest some decent money in some cases, but it is much less than you would need if you were buying a property on your own.

As far as risk goes, these investments are generally quite safe as long as they are legitimate.

Because you only invest a portion of the funds needed, you only absorb a bit of the risk.

The return on investment can be quite strong, depending on what kind of an investment it is.

Safest Real Estate Investment: Participate in an REIG

Another way you can invest with others to purchase properties is through an REIG (real estate investment group).

This is generally a business with multiple partners that will focus their effort on real estate investments.

It can be a group of friends, a family-run operation, or even an agreement between like-minded individuals.

The REIG can decide to fix and flip homes, renovate homes, rent out properties, manage vacation rentals, or any number of other options.

Because of the many members, these REIGs will often have a lot of pooled capital and can make investments most people wouldn’t be able to do on their own.

Compared to investments where you are the only party involved, these will generally be safe.

If something were to go wrong, you aren’t the only one who takes a hit.

Safest Real Estate Investment: Rent Out a Part of Your Home

Safest Real Estate Investment

 

If you want to dip your toes into the realm of real estate investing and start small, a great option is to rent out a room or part of your home.

You could rent it out long-term, or just periodically for those looking for a place to stay for a few nights.

When you are out of town, you could even rent out the whole home.

It gives you a taste of what investing might be like, without having to purchase a property for it and without putting yourself in potential financial trouble.

This is a much more accessible option, and quite safe as there is no financial risk (other than any damage caused by the renter).

Of course, be sure to know a lot about an individual before allowing them to share your home.

In conclusion, there are many different real estate investments out there that can be safe.

It all depends on how well you prepare and how well you know your market.

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Brent Davis has been writing about the financial markets for 10 years and worked in research for the last five years at a Fortune 500 company. Brent's investing strategy is to buy high-quality companies and then let compounding do its thing.