Council Post: Four Real Estate Investing Strategies For 2023: Understanding The Risks And Benefits (2024)

Josh Felber is the CEO/CMO of 10x Training Systems LLC, uncovering the mindset and success strategies of the top 1%.

Over the past decade, along with being a serial entrepreneur who has built multiple seven-figure companies, I have been a passionate real estate investor with a large investment portfolio across many parts of the country. My core perspective is that real estate is the truest sense of long-term investing and can provide steady cash flow from generation to generation while appreciating value over time.

I look at real estate as a way of expanding one’s existing portfolio. With the uncertainty of an upcoming recession looming over us, there is doubt about whether the timing is opportune to invest. This sector, however, can serve as a hedge against the ever-increasing rates of inflation.

Commercial properties are among the real estate classes that are most popular. Here are the benefits and risks of some alternatives.

Rental Properties

I think the most well-known of all real estate investments are the properties meant for families to reside in. Vacation rentals or holiday homes can be lucrative investments, too. You can invest in a location that is a "tourist hotspot" or a holiday destination and list your property on apps and sites that promote tourism. In some cases, renting out for a few days could bring in more income than if you had to rent out the place for a month. With people looking to escape the busy city life, holiday homes with a sea view, beachfront or an open garden space could be the ideal buy.

Be aware, though, that the market is sensitive to economic fluctuations. Rental demand may decrease, leading to longer vacancies and potentially lower rental rates based on the prevalent local economic conditions. It’s important to consider the potential resale value before investing in case you decide to exit earlier than expected.

There is no guarantee, even in the best of locations, that your property will always be occupied. Save a financial cushion for yourself to cover periods of vacancy.

Remember that you'll also need to deal with tenant inquiries, maintenance issues and property repairs. Improper management of these responsibilities can lead to stress and financial losses. The rental sector is also subject to a number of local laws, safety regulations, zoning ordinances and so on. Stay on top of these to avoid legal disputes and hefty fines.

Healthcare Facilities

We've seen the importance of medical care facilities as we grappled with the pandemic. Medical office buildings, or MOBs, are now valued as investments. Healthcare facilities, however, are subject to strict regulations. Compliance is big in this industry. You'll want to ensure that the property meets all necessary health and safety standards.

Advances in medical technology and changes in healthcare policies could also impact profitability and demand. The cost is intensive—you need to consider medical equipment, technology, specialized infrastructure and so on. Tenant turnover, in this case, can also lead to long periods of vacancy.

I recommend investors do thorough market research to understand the area's demographics and existing healthcare infrastructure. Work on building strong relationships with reputable healthcare tenants, as long-term leases can provide stability to your investment.

Investment Trusts

Known better as REITS or real estate investment trusts, this method of investing is for you if you want a more hands-off approach. Opt for it if you want to invest in real estate without having to deal with the complexities that come with managing it.

REITs own various properties in the form of apartments, retail spaces, malls and residential homes. Investors buy shares of a REIT, thereby helping them use those funds to manage the property. In turn, the income generated is returned to investors in the form of dividends. REITs are an attractive option today for their high-yield dividends.

Although convenient, there are scenarios where REITs might not be an ideal option. Investors don't have direct control over property management decisions. If you prefer this, REITs might not work for you.

They are also susceptible to stock market volatility. Economic downturns or shifts in investor sentiment can affect prices. Dividends are taxed as income, which can have tax implications. You might want to explore other avenues if you're focused on tax efficiency. REITs often charge management fees. Understand the fee structure to see how it impacts your overall returns.

Tokenized Real Estate Investing

Tokenized real estate is not a traditional method, no doubt, but it has its benefits. Once investors choose the right platform, they can receive regular payments and a token with the valuation of the property, which they can use to trade.

The edge here, over other forms of real estate investing, is liquidity. With technology being involved, investors can buy and/or sell almost instantly. The deals are automated and eliminate the need for human intervention. More transparency could mean less unfair practices or unrequited paperwork.

While it offers certain benefits, there are risks to consider as well. Investors could face issues with the underlying blockchain platform, like technical glitches, vulnerabilities or system breaches. Additionally, the regulatory environment for tokenized real estate is still evolving. The uncertainty could lead to potential legal issues in the future.

Research and choose a reputable and secure tokenization platform. Look into the platform's track record and security measures and compliance with relevant regulations. Make sure you understand how property valuations are determined and conduct thorough due diligence on the properties being tokenized. Verify the accuracy of property information.

Liquidity might not be as high as more established investment options, and token values could be subject to rapid changes. Get clarity on how you can exit your investment if needed. Some platforms might have restrictions on selling tokens or require a specific process for divestment.

There are also many other investment strategies to consider. But it all boils down to understanding your investment goals and deciding what works best for you.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

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