How to Invest in Real Estate Long-term: 6 Tips

Escaping from real estate is inevitable, from multi-million-dollar listings to house flippers. While it is astonishing to see a complete house transformation play out over the course of an hour, it would be even more fantastic if you were able to become actively involved. Real estate often proves to be a lucrative investment, offering both incomes — in the form of rents and appreciation when you sell appreciated property at a profit. It's also a good way to create diversity in your portfolio, as an asset that's subject to different influences than stocks and bonds.

And for the everyday individual, it may be more accessible than you think. Although it requires considerable time, patience, and cash, almost anyone can invest in real estate. Here are six ways you can get in on climbing the property ladder through real estate investing.

1. Real Estate Crowdfunding 

Real estate crowdfunding is a strategy that allows enterprises to raise capital from large groups of individuals. It's done via online platforms that provide a meeting ground/marketplace between real estate developers and interested investors. In exchange for their money, investors receive debt or equity in a development project and in successful cases, monthly or quarterly distributions. 

Not all real estate crowdfunding platforms are available to everyone: Many are reserved for accredited investors — that is, high-net-worth, and/or highly experienced individuals. Still, there are fewer exclusive platforms that allow newbies to invest as little as $500. Through these sites, you create an account and either select a portfolio strategy based on your goals, with brokers diversifying your money across a series of investment funds, or browse and select investments yourself, keeping up with their progress through a 24/7 online dashboard. 

Despite their convenience, crowdfunding offerings come along with considerable risk. As private investments, they're not as liquid (easily sold) as other publicly traded securities, like stocks. Think of your funds as being tied up over the long term. It is recommended that investors have a time horizon of at least five years.

2. Real Estate Investment Trusts (REITs)

If you want to wade into real estate, investing in a real estate investment trust (REIT) will provide exposure to the market without the time and cost commitment of buying your own property. 

REITs are companies that own, operate, or finance properties and real estate ventures. Like mutual funds or exchange-traded funds, they own not just one, but a basket of assets. Investors purchase shares of a REIT and earn a proportionate share of the income produced by those assets.

Equity REITs are the most common, and allow investors to pool their money to fund the purchase, development, and management of real estate properties. A REIT focuses on a specific type of real estate, such as apartment complexes, hospitals, hotels, or malls. 90% of its annual earnings must be distributed to the investors as dividends.

A big selling point of REITs is that most of them trade on public stock exchanges. So that means REITs combine the opportunity to own, and profit from, real estate with the ease and liquidity of investing in stocks. 

Geared towards generating income, usually from rent and leases, REITs offer regular returns and high dividends. They also appeal to investors because of the unique way that they are taxed: REITs are structured as pass-through entities, meaning they don't pay corporate tax. This effectively means higher returns for their investors. 

If you want to keep your investment liquid, stick to publicly traded REITs (a few REITs are private ventures). You can buy shares through a brokerage firm. 

3. Real Estate Limited Partnerships

A real estate limited partnership (RELP) provides investors with a diversified portfolio of real estate investment opportunities, allowing you to merge your funds with other investors to buy, lease, develop, and sell properties that would be hard to manage or afford independently. Like REITs, RELPs usually own a pool of properties, but they differ in their structure and organization. Primarily, RELPs are a form of private equity — that is, they are not traded on public exchanges

Instead, they exist for a set term, which typically lasts between seven and 12 years. During this term, RELPs function like small companies, forming a business plan and identifying properties to purchase and/or develop, manage, and finally sell-off, with profits distributed along the way. After the holdings are all dispatched, the partnership dissolves. 

They're generally more suitable for high-net-worth investors. Most RELPs have an investment minimum of generally $2,000 or above, and often substantially more — some set minimum "buy-ins" anywhere from $100,000 to a few million, depending on the number and size of the property purchases.

4. Become a landlord 

One classic way to invest in real estate is to buy a property and lease it, or part of it. Being a landlord can come in many forms.

The first is to buy a single-family home and rent it out, a strategy that will only generate income if overhead costs are low. If your tenant's rental payment doesn't cover the mortgage, insurance, taxes, and maintenance, you're effectively losing money. Ideally, your monthly mortgage payment will be relatively fixed, while rent prices rise, increasing the amount of money you pocket over time.

Nowadays, you can shop for rental properties online, which allows sellers of vacant homes primed for renters to list their properties, facilitates the buying process.

Another option is "house-hacking," which is when you purchase a multi-unit building and live in one of the units while renting out the others. This strategy decreases your living expenses while simultaneously generating income that can cover mortgage payments, taxes, and insurance. 

A low commitment version of house-hacking is to rent part of your home via sites like Airbnb, which would allow you some extra monthly cash without having to commit to taking on a long-term tenant.

On the opposite, more ambitious end, you could aim for a condo conversion, in which you buy a multifamily building, rent out the units, and then later turn the units into condos and sell them off individually, says Boston-based realtor and real estate investor Dana Bull. "So the idea is, you buy the building for a little bit of a discount, and then eventually you're able to sell for top dollar," she says.

5. House Flipping

Some people take it a step further, buying homes to renovate and resell. Though those TV shows often make it look easy, "flipping" remains one of the most time-consuming and costly ways to invest in real estate. But it also has the potential to produce the biggest gains. 

To be a successful flipper, you should always be prepared for unexpected problems, budget increases, time-inducing mistakes, a longer renovation timeline, and issues selling on the market.

It's especially important to build a team of experts — contractors, interior designers, attorneys, and accountants — you can trust. And make sure you have the cash reserves to troubleshoot. Even experienced flippers find a project inevitably takes longer and costs more than they think.

6. Invest in Your Own Home

Finally, if you want to invest in real estate, look closer to home — your own home. Homeownership is a goal many Canadians strive to achieve, and rightfully so. Residential real estate has had its ups and downs over the years, but it generally appreciates in the long-term.

Most folks don't buy a home outright, but take out a mortgage. Working to paying it off, and owning your home outright, is a long-term investment that can protect against the volatility of the real estate market. It's often seen as the step that precedes investing in other types of real estate and has the added benefit of boosting your net worth, since you now own a major asset.