Housing is arguably one of the oldest and most profitable forms of investment. Of course, we're referring to directly owning a house as an asset and giving it up for rent or lease. There are so many advantages owning a house brings, and they are rather simple and basic. The continuous inflow of money through rent is an obvious and straightforward advantage.
There's also the fact that actively rented homes appreciate in value over time at little or no significant cost to the landlord because when someone starts living in a place, they optimize it over time in ways that would continue to meet their comfort needs. When the tenants leave the house, the value they have added increases the overall valuation for that house and may increase the rent for subsequent movers.
Not everyone can have the financial means to own properties that they can lease or rent out to make a profit. And usually, high net worth individuals end up monopolizing this investment category.
But there are ways for regular people to tap into real estate investments, which can be done through real estate investment trusts (REITs). Just like the concept of mutual funds, REITs serve as a means for investors, both small and big, to provide funds that will be used to invest in different real estate opportunities. In fact, the REITs actually use investors’ collective money to buy into several properties that would serve as the income generator for their investors.
Housing may be the first thing that comes to mind when real estate is mentioned, but the REITs also buy into other properties like offices and malls in addition to houses. And based on a law laid down by the SEC, to qualify as a REIT, a company must have the bulk of its assets and income connected to real estate investment and must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends.
This means that REITs can provide investors with a steady source of income, but in doing so, the burden of income tax would now lay more on the investor rather than the company. This is not believed to constitute a disadvantage, though, because if the REITs have to pay the income tax, it will simply erode a huge chunk of potential profit for investors.
Similarly, there are real estate investment groups (REIGs) that purchase buildings and ask investors to buy into the company to own some of those buildings. They assume responsibility for managing everything related to the buildings, including advertising to get tenants and ensuring the building is well maintained over time.
At the end of the month, the company takes a percentage of the rent on all owned buildings as a management fee, and the investors are paid theirs. We can’t think of a more chilled way to be a landlord than having to do absolutely nothing but provide capital.