Long Term Vs. Short Term Investment Options In Real EstateBy
Prudhvi Reddy, 05-Jan-2020
Real Estate Investment: Long term vs Short term
Real Estate is a unique asset class that offers investment opportunities for every kind of investor. Investors can invest in several ways, for whatever tenure they want to, in Real Estate. The best part with every investment you make in Real Estate is that the investment is backed by a physical asset. That’s the reason Real Estate makes it to the portfolio of most of the successful investors. Real Estate investment is one of the best ways to acquire wealth. Along with capital appreciation, it is also great for generating passive income.
One big dilemma for an investor is whether to choose a long term investment option or a short term. Both options have their benefits and risks. So, understanding and being aware of the pros and cons of both investment options is important to become a successful investor There are many numerous methods for investing in real estate. Some investors choose to follow traditional methods of buying land or residential properties for capital appreciation and rental income. But there are numerous other ways you can invest in Real Estate.
Any investment that lasts for 12 months or less, is a short term investment. A short term investment usually provides investors with a higher rate of returns, but with a higher risk. With short term investments, there is an equal chance of making money and losing money. Though the risk is higher if you are willing to invest in short term projects you can make a lot of profits.
For properties in areas with a stable increase in value, investing in the short term would be great.
Fix and flip properties are also great for short term investments.
There are also a few other short term investment options to try your hand at.
- Rental properties-
Short term rental properties have become a popular way to invest in real estate. Investors can even make more money from short-term rentals than traditional long-term rentals. Vacation properties are popular short term rental properties. With increasing tourists and tourist places, vacation properties are always on demand. A well-maintained house in a good tourist area is all you need to earn handsome rental income through short term investment.
- Fix and flip-
Short-term real estate investors also invest in Fix-and-flip properties, where they purchase and renovate a property and flip it for a profit. This type of funding for flipping houses offers investors in closing an investment within a short tenure and yield high income. Hard money loans are the most popular type of fix-and-flip loan.
P2P loans are short term investment options where the investors lend their money for rehab projects. P2P platforms are great for investors to lend their money as they get more interest than any other traditional investment option. The investor gets the returns each month as the borrower makes their repayments.
Investments that last for more than 12 months are long term investments. Real Estate considered as a long term option will be the best if you want to avoid high risk. Long term investment offers a lower, stable return with good appreciation however the risk involved is comparatively less. Long term investments are also the potential passive income-producing through rentals.
In long term investments, money is tied up for the long term, and the small amount of returns you make over the time becomes solid towards the end of the tenure. Long term investments are also benefited by tax benefits where the returns are taxed lesser than the short term gains. These Some long term investment options to choose from are:
- Equity crowdfunding-
Equity crowdfunding platform is a modern real estate investment vehicle that is highly popular for long term investments. These platforms enable investors to fund any type of commercial or residential property that generates handsome rentals also with value appreciation. Equity crowdfunding is a reliable source for long term investments and the investor can fund investment at the comfort of their house.
- Multifamily housing-
Multi-housing properties are a great source of long term investment. Investing in these type of properties help in earning a stable passive income along with a good capital appreciation. Multifamily housing investment is a strategy used by investors who want to avoid risk and generate passive income.
A REIT, is a company that either owns or funds real estate properties that produce income. REITs collect the investment from investors and buy their profitable real estate property the profits generated from these properties are returned to the investors. In this way, the investors indirectly own and earn income from a real estate property but do not have to worry about the property’s maintenance.
No matter how you choose to invest in Real Estate you will never regret investing in it. Investing in Real Estate property is one of the best decisions you’ll ever make. Choosing the investment option based on the investment objective is also important for becoming a successful investor. Real estate is also a great way to diversify the portfolio, you can invest in both the options to reduce the risk involved.
Long term rental is letting the real estate property for rentals for a long tenure i.e., more than 2 years.
Short term rentals are a good investment option but the risk is comparatively higher than long term rentals. Short term rentals generate higher profits but you should also consider the risk factor.
When the property is held for more than two years the income generated is regarded as Long-term capital gains that are taxed at a rate of 20 percent.
Real Estate property that is rented out for a short period of time that is less than 2 years is called short term rental property.