Real estate investing refers to buying or owning property. The property could be residential homes, commercial, land or Real Estate Investment Trust (REIT) shares. The aim should be to generate income and capital gains, or both, from the property. Real estate is a physical asset, unlike some other asset classes. It is valued because it offers the potential for steady cash flow and long‑term appreciation.
What Is House Hacking
For many Americans living in high‑cost real estate markets, owning a home can feel out of reach. Home affordability is a significant issue in many places, according to a Forbes report. House hacking is an innovative way for anyone who wants to get into the real estate market and make money at the same time.
The practice of renting out parts of a principal dwelling, such as additional bedrooms, a basement flat or a separate unit to make money is known as house hacking. When used properly, house hacking can allow residents to live in expensive neighbourhoods for little expense. In certain situations, it can even produce a profit.
Essentially, house hacking makes it possible for people who might not otherwise be able to buy a costly home to make better use of their residence. By transforming what could otherwise be a burden into a source of revenue, it maximises a home’s financial potential.
Advantages Of House Hacking
House hacking generates rental income from parts of the property, which helps lower monthly housing costs. Mortgage payments and other ownership costs can be covered by this income. It can also improve overall cash flow by reducing taxable income through possible deductions like mortgage interest. In addition to saving money, home hacking is a useful way to start investing in real estate because it provides actual experience in property management.
House Hacking Don’ts
Buying a first home can be exciting, but rushing into house hacking can lead to costly mistakes.
One major risk is underestimating the responsibility of being a landlord. Repairs, maintenance and missed rent payments are part of the job. Written rental agreements and a backup plan for mortgage payments are essential, especially when living on the same property as tenants.
Location matters. Buying a multi-family home in a poorly connected or undesirable area can make it hard to attract renters. Access to transport and city centres should be a priority.
Buyers should also review rules carefully. Some associations restrict or ban renting out rooms or units, which can derail a house hacking strategy.
Other Real Estate Strategies
Once you’ve mastered house hacking or grown comfortable with direct ownership, there are additional active investment strategies. These include:
Buy and hold: Purchase property and rent it long‑term for steady income.
Fix‑and‑flip: Buy underpriced or distressed properties, renovate them and sell for profit.
Short‑term rentals: Use platforms like Airbnb to rent properties on a nightly basis,
potentially earning higher income in tourist areas.
Each of these requires more involvement and often more capital than house hacking, and they carry different risk and work‑level profiles.
REITs: What Are they
REITs are companies that own, operate or finance income-producing real estate such as apartment buildings, shopping centres, offices and data centres. In many cases, their shares are publicly traded on stock exchanges, much like ordinary company stocks. When an investor buys a REIT share, they gain partial ownership in the trust’s real estate assets, similar to how buying a stock represents ownership in a company.
How REITs Work
REITs function in a way similar to mutual funds, pooling money from multiple investors to invest in real estate instead of stocks or bonds. Investors earn returns through regular dividend payments and potential increases in the REIT’s share price.
By investing in property, REITs turn traditionally illiquid assets into liquid investments that can be easily bought and sold on exchanges. They invest across a wide range of real estate assets, including apartment buildings, data centres, healthcare facilities, hotels, infrastructure such as cell towers and energy pipelines, office spaces, retail centres, self-storage units, timberland and warehouses.
Types Of REITs
REITs are commonly classified based on the type of real estate assets they invest in. Traditionally, there have been three main categories.
Equity REITs own and operate income-producing properties. Their revenue comes primarily from rental income rather than from selling properties.
Mortgage REITs invest in mortgages, mortgage-backed securities or provide real estate loans. These REITs tend to be particularly sensitive to changes in interest rates, although rising rates can also affect equity REITs.
Hybrid REITs combine elements of both equity and mortgage REIT strategies. However, following the 2008 financial crisis and subsequent regulatory changes, hybrid REITs have become far less common as the sector has moved towards greater specialisation.
Pros Of Investing In REITs
- High liquidity, as most REITs trade on public stock exchanges.
- Portfolio diversification across multiple properties and sectors.
- Potential for steady cash flow through regular dividend payouts.
- Can offer attractive risk-adjusted returns compared with direct property ownership.
Cons Of Investing In REITs
- Limited growth potential compared with some other asset classes.
- Dividends are typically taxed as ordinary income.
- Exposure to broader market volatility and interest rate changes.
- Possibility of higher management and transaction fees.
How To Get Started
Beginners should start by defining their investment goals. From there, they can explore strategies that align with their risk tolerance and available capital.
For those seeking hands‑on involvement and reduced living costs, house hacking is often a good first step. But for investors seeking passive income with less complexity, REITs may be preferable.