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Investing in Real Estate – Using Diversification to Reduce the Risk of Investing in One Area

How much should you invest in real estate? There is no hard and fast rule for this. The best thing you can do is get educated on how to invest and figure out your risk tolerance and then make a decision on what type of return you are willing to put on top of that. Here are some ways to look at investing in real estate.


Real estate investing is not like stock investing, where you can buy low and sell high. To invest in real estate is to hold onto an asset for the long-term benefit/price appreciation in the market. Simply stated, to invest in real estate means holding an asset for the long term or an indefinite period of time with the primary goal of producing income from your investment through price appreciation or an increase in your asset’s value over a defined period of time. It can be viewed similarly to bond investing where you are paying a coupon for the asset, however, you aren’t receiving a distribution until the coupon is paid in full or the asset is sold.

One of the most common types of investing in real estate is retail investing. This involves investing in properties such as apartment buildings, commercial properties, storefronts, strip malls, and any other type of property you can think of. The main difference between retail investing and other types of investing is profit potential.

As previously mentioned there are two basic types of investing. These are known as long-term and short-term investments. Long-term investments are typically held and managed by large financial institutions, corporations, and wealthy individuals. These types of investments are typically established through bonds, stocks, and annuities. Short-term investments can be made with a variety of different assets and strategies.

When it comes to investing you want to select the best strategies that will allow you to maximize your profits and minimize your losses. The most commonly used strategies by both long-term and short-term investors are stock picking, bond investing, currency investing, commodity investing, and mutual funds. Of all these different asset allocation strategies almost every investor has some type of investment portfolio. Most investors use some type of mix of these different investment portfolio strategies.

Investing in mutual funds is also very popular. These are investments in individual securities such as stocks and bonds. These types of investments are not federally regulated like mutual funds are. Because of this, investing in mutual funds is not as sure as investing in stocks and bonds, but they are safer as well. When purchasing these investments, you are required to buy a minimum number of shares, depending on the minimum requirement.

Stocks and bonds are popular investments because most everyone has some amount invested in them. Stocks are usually purchased by individuals or businesses that want to increase their value and can do so with the help of dividends. Most stocks are traded publicly, while bonds are traded privately. Both types of investments pay dividends periodically.

The last major type of investment is real estate investing. Real estate investing comes with some risks, but if you have a high enough risk tolerance you can probably make a profit. Many investors purchase properties for rental purposes. If you are able to turn a profit on your rental properties, this can add to your wealth. No matter what type of investment you select, you are increasing your risk tolerance and investing in an exciting and rewarding area.

You must keep in mind when investing, the time frame you are planning to invest, your expected gains, and your ROI. If you plan on investing for the long term and in many different areas, you should research dollar-cost averaging methods. Dollar cost averaging works by reinvesting part of your gains in new and more promising investments. Dividing your total profits by the amount of time you plan to reinvest will help you keep track of your progress.

One thing to keep in mind when investing in real estate is that investing is not tax deductible. Real estate investing does not produce the same results as other types of investing. For instance, when you purchase a home, you are using the purchase price as the basis for paying taxes and mortgage interest. If you wait to sell the house until market conditions improve, you lose all of your investment, regardless of how much you paid for it. If you wait too long to sell a property, you can find yourself paying considerably more for the same home than you would have paid if you had sold it immediately.

Your overall goal of investing should be one that is long-term. Whether you are planning to purchase rental properties to live in, or whether you want to use your investment funds for stock holdings, you need to keep your eyes and ears open for any signs that the investment opportunities available to you might not be what you originally expected. Once you have determined that you want to continue with your investments for the long term, you can decide what type of strategy you will employ in order to reach that goal. Whether it is buying a house at a low price, using real estate cash flow to create rental properties, or investing in the stock market, you must educate yourself in order to succeed. By doing so, you will not only enjoy the investment opportunities available to you, but you will be able to pass your knowledge down through generations of your family.