The past decade was a harsh one for the real estate industry. In 2007 Americans lost approximately $6 trillion dollars in real estate wealth in what has become referred to as the burst of the house market bubble. Many Americans are cautiously asking themselves, “should I invest in real estate,” for fear that the market bubble could burst again. It is a question that many are justified in asking; here are a few things to consider before investing in real estate.
The State of the Real Estate Market
Since the bubble burst, the real estate market has grown at a healthy rate. At this present time there are over 2 million licensed realtors in the U.S. with increasing demand for more. With the current population growth rate, there will need to be millions of additional residences built every year to keep up with demand. So while no one can predict if or when there will be another real estate bubble burst, the aftermath of the burst has created a growing number of opportunities for real estate investors to make a profit.
The Risk/Reward of Flipping Houses
When most individuals think of investing in real estate, they typically picture buying a house to fix up and sell for a profit. This can and in fact does work, but there are naturally a number of risks involved with purchasing a property in such a manner. A degree of confidence, capital, and luck is all involved in the process, as no one can ensure that a fixed up home will sell or if the investor will have a large enough return on investment to justify purchasing the home in the first place. So while fixing up houses to sell is certainly one way to improve communities and potentially earn a profit, for many the risks understandably out-weigh the rewards.
Investing in Commercial Real Estate
For those lacking the commitment, skill, or bravado to flip a house, a real estate investment trust (REIT) could be the best way to invest in the real estate industry. The question of how to invest in a REIT itself is a fairly simple one; the real question is to determine exactly what kind of properties you are interested in to find the right real estate partners. It is estimated that the commercial real estate industry in the United States is worth an estimated $945 billion; finding real estate partners in the commercial real estate sector may be the ideal investment strategy for those looking to make sizable profits. Since commercial real estate companies typically develop industrial, commercial, and multi-family residential properties, investors are open to a wider range of opportunities than they would be with purely residential real estate partners. Commercial real estate partners remove the uncertainty of flipping houses by helping investors manage cash inflows, outflows, timing of cash flows, plus the risks involved with each investment. For those looking to break out into the real estate market, investing with commercial REIT partners is the best way to make informed investments while minimizing personal risks.