Real estate investments can be a lucrative way to diversify your portfolio and build

wealth. The asset class offers several benefits, including income, equity growth and

tax advantages. But how much to invest in real estate depends on your financial

goals and risk tolerance. Many investors consider real estate a long-term

investment, which can provide both capital gains and ongoing cash flow. However,

the upfront costs of purchasing and maintaining an investment property can be

significant, making them more expensive than other forms of investing.

The most common way to make money in real estate is through appreciation, or

when a property’s value rises over time. This can happen due to market conditions,

population growth or changes in demand. Another way to make money is through

rental income, or when a property generates more rent than it costs to operate. The

income can be used to pay for mortgage expenses, taxes and maintenance costs, or

it can be reinvested into the property to increase its value. Read more

Residential real estate is a popular choice for investors looking to generate passive

income. This can be achieved through buying and renting out a single-family home

or by purchasing a multifamily property like an apartment building or townhomes.

Regardless of the type of real estate you choose, it is important to understand all the

costs involved. These costs can include a property inspection, closing fees, a

contingency fund, and loan application and underwriting fees. Then, there are the

ongoing costs of mortgage payments, property maintenance and insurance.

Ultimately, these costs can easily eat up any profits from the property.

It is also crucial to know your local housing market well. Each market is at a different

stage in the real estate cycle. Ideally, you want to invest in properties during the

expansion phase, when demand is high and prices are rising. However, it is equally

important to be prepared for a bust phase, when demand slows and prices decline.

To get started in the real estate investment business, you will need a large amount

of cash to purchase a property. The biggest upfront cost is the down payment, which

can be as high as 20% of the total property price. However, you can also get started

with a smaller amount of cash by purchasing a turnkey property. This type of

property is already occupied and managed by a landlord, which reduces your

upfront costs and risk.

Another option is to invest in a real estate mutual fund, ETF or REIT. These

instruments give you exposure to a range of real estate companies without the

hassle of researching individual stocks. For example, you can invest in NYC real

estate by choosing REITS such as SLG (SL Greene), VNO (Vornado) and ESRT

(Empire State Realty Trust). However, be aware that these funds come with a

different risk profile than direct investments in a single property. In addition, they

are often illiquid, which means you may not be able to sell them quickly.