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As more people get into the world of investing, one asset class that continues to gain popularity among investors is real estate. This is because of its potential for appreciation, steady income through rental properties and portfolio diversification. According to a poll by Gallup, only about 54% of Americans own any stocks while roughly 63% of Americans own real estate.
With 2 million dollars in investment capital, you can access a wide range of investment opportunities in both residential and commercial real estate. Before you go ahead and dive in, be sure to assess your investment strategy and risk tolerance.
It would also be in your best interest to schedule a meeting with a financial advisor and real estate professional so they can provide insights that will help you make the right investment decisions. By doing so, you will be able to take advantage of different investment opportunities that will help you reach your financial goals and attain financial freedom.
With $2 million in your possession, here are some of the best ways to invest in real estate.
Key Takeaways
- Over time, real estate is one of the asset classes that continues to grow in popularity among investors. In the US, it is reported that roughly 54% of Americans own stocks while 63% of Americans own real estate.
- Some of the best ways to invest 2 million dollars in real estate include: purchasing rental property, buying REIT shares, house flipping, real estate crowdfunding and purchasing your own home.
- Before investing in real estate, it is advisable that you first speak with a financial advisor and a real estate professional so they can share insights that will help you understand your best investment options.
Disclaimer
The contents of this article are for educational purposes only. They are not intended to be a source of professional real estate advice. You will find experts on real estate investing here.
Work with the best real estate investment advisor
To make the most of your 2 million dollar investment, working with an experienced and qualified real estate investment advisor is the best decision that you can make.
Ila Corcoran is a licensed Realtor and the SVP of Real Estate Operations and Advisory services at Bay Street Capital Holdings. Starting off her career in apartment management and leasing, Ila has worked in both commercial and residential real estate. With a passion to help older and younger Americans create security through housing and homeownership, Ila's specialty majorly lies in residential real estate.
With a Bachelor's degree, 2 minors from California State University Long Beach and an active Real Estate License, Ila has handled numerous residential sales in Los Angeles and the greater Southern California region. As of 2023, she has closed $10.4M in real estate transactions.
As a licensed investment advisor at Bay Street Capital Holdings, Ila played a key role in supporting Resthaven secure $25M in funding from investors who share the common vision of catering to the accommodation needs of people in diverse communities.
In addition to her involvement as a Realtor and investment advisor, Ila is very keen to give back to her community. During her free time, she serves in apartment communities across Los Angeles and the non-profit housing space dedicated to serving those experiencing homelessness.
If you're a real estate investor in Los Angeles and the greater Southern California area, and are looking for the best real estate investment advisor to work with, schedule an appointment with Ila today and she will get you started on your investment journey.
Direct vs. indirect investments
Depending on your investment goals and risk tolerance, you can choose to invest in real estate directly or indirectly. More often than not, many investors opt to have a mix of both to achieve a balanced real estate investment portfolio.
Direct real estate investing involves buying and managing of physical properties, such as residential homes, commercial buildings or land with the aim of profiting from these investments. Direct investing usually requires more hands-on effort and capital commitment, but also allows for more control and potentially higher returns.
Indirect real estate investing on the other hand involves investing in real estate-related assets or securities, such as real estate investment trusts (REITs), real estate mutual funds or partnerships, rather than owning physical properties directly. While these investments come with management fees and offer limited control over the underlying properties, they also offer portfolio diversification and are usually more liquid.
Best ways to invest 2 million dollars in real estate
Here are the top 5 ways of investing in real estate for income.
Purchase rental property
With $2 million, one of the ways in which you can invest in real estate for income is by purchasing rental property. As of 2023, the total population in the United States stands at approximately 340 million people, which means that the demand for housing is on the rise. By buying a single-family home, duplex or apartment units, you can earn rental income as well as benefit from property appreciation.
Before you go ahead and buy a house or apartment, ensure that you conduct research so that you're able to find affordable property in desirable locations. With the help of a qualified real estate agent, you can find a house that is well within your budget. Your agent can also guide you through the entire purchase process and help you perform thorough due diligence on the investment property.
Buying residential property and renting it out can be a great strategy for building wealth and generating a steady stream of passive income.
Pros
Steady rental income: One of the primary benefits of owning rental property is the steady stream of rental income it can provide. This income can offer financial stability and cover property expenses, including mortgage payments, property management fees and maintenance costs.
Potential for appreciation: Unlike stocks and exchange traded funds, real estate properties often appreciate in value over time. This can result in capital appreciation, increasing the overall value of the underlying real estate asset.
Tax advantages: Owners of rental property can benefit from various tax deductions and incentives. These may include deductions for mortgage interest, property taxes and maintenance expenses. By taking advantage of these tax benefits, you can end up paying lower tax bills.
Cons
Management responsibilities: Owning and managing rental properties can be time consuming as it requires you to be very hands-on. As the property owner, you are responsible for things like finding and screening tenants, addressing maintenance issues and handling tenant disputes.
Vacancy and tenant issues: Experiencing vacancies or dealing with problematic tenants can significantly impact your rental income and lead to financial setbacks.
Market volatility: Property values may not always appreciate as expected, and in some cases, they can decline. Economic downturns can also affect rental demand, potentially leading to lower occupancy rates and rental income.
Real Estate Investment Trusts (REITs)
If you would like to invest in real estate passively, buying REIT shares can be a great way to gain exposure to the real estate market.
REITs are publicly traded companies that own and manage income-producing real estate assets, such as office buildings, shopping centers and apartment complexes. Investing in Real Estate Investment Trusts (REITs) is a straightforward process as all you need to do is buy REIT shares just like you would buy stocks in the stock market.
Here is a simple breakdown of how REITs work:
- REITs are structured as corporations or trusts and are publicly traded on stock exchanges. They are required by law to distribute at least 90% of their taxable income to shareholders in the form of dividends.
- Typically, REITs invest in a diversified portfolio of real estate assets, which can include commercial properties, residential properties, hotels and healthcare facilities.
- REITs generate most of their income from the rental income generated by their real estate holdings. They may also earn income from property sales or interest on real estate-related loans.
- REITs are managed by experienced real estate professionals who usually handle acquisition of the property, leasing and maintenance.
Pros
Portfolio diversification: REITs provide an opportunity for investors to diversify their real estate investments across various property types and geographic locations without the need for substantial capital. This diversification can help spread risk.
Liquidity: REIT shares are publicly traded on stock exchanges, making them highly liquid assets. Investors can easily buy or sell REIT shares, unlike owning physical real estate, which can take a long time to sell in case you need to access cash urgently.
Steady income stream: REITs are known for their consistent dividend payments, which are typically higher than those of many other stocks. They can provide a reliable income stream, making them attractive to investors who are mainly income-oriented investors.
Cons
Market volatility: REITs can be sensitive to interest rate changes and economic conditions. When interest rates rise, the value of REIT shares may decline, and economic downturns can negatively impact property occupancy rates and rental income.
Management costs: REITs often have management fees and expenses, which can reduce overall returns. As an investor, you should be aware of these costs when considering REIT investments.
Lack of control: When you invest in REITs, you don't have direct control over property management or decision-making. The management team usually makes decisions on property acquisitions, sales and leasing, which may not always align with your preferences.
House flipping
House flipping has become a popular way of real estate investing among people looking to grow their wealth in this sector. Although the process is more complicated in comparison to owning a house and becoming a landlord, if you have a good eye for valuable property, you can make a quick buck.
House flipping is a process that involves renovation of a distressed property with the intention of selling it at a profit. Usually a flipper will identify a distressed property that has potential, purchase it, renovate it and then sell it at the current market value, thus making their profit. House flipping requires someone with a good eye and clear understanding of how to manage contractors and renovation costs effectively.
Since house flipping is a short term investment strategy, it can come with its fair share of challenges. If for example you end up making wrong calculations, you could incur serious losses. Also in the case where a house is not in a desirable area, it could end up not selling quickly enough. That means that the house flipper has to pay loan interest for the house until they are able to find a willing buyer.
Pros
Profit potential: House flipping can be a profitable venture if done right. By purchasing distressed properties at a lower price, improving them and then selling at a higher price, you can potentially generate significant returns on your investment.
Short-term investment: Depending on how much income you're looking to make, flipping houses can offer relatively quick returns compared to long-term real estate investments. This allows you to take advantage of market opportunities and access your profits sooner.
Creative control: House flippers have the creative freedom to design and renovate properties according to their vision. This can be personally rewarding and allows you to add value to the property.
Cons
High risk investment: House flipping carries inherent risks, including unexpected renovation costs, market fluctuations and extended holding periods. If the market turns unfavorable or renovation expenses exceed budget, profits can quickly diminish.
Time-consuming: Successful house flipping demands a significant time commitment. Sourcing properties, overseeing renovations and handling the sale process can be time-consuming, thus limiting your ability to pursue other investments opportunities.
Lack of predictability: The real estate market can be unpredictable and economic downturns or shifts in local housing demand can impact your ability to sell properties at a profit.
Real estate crowdfunding
Another way in which you can passively invest in real estate is through crowdfunding. Investing in real estate through crowdfunding platforms involves pooling funds with other investors through online platforms or crowdfunding portals to collectively invest in real estate projects. This means that as an investor, you can gain access to bigger commercial investment opportunities that you otherwise wouldn't have access to.
Essentially, these platforms connect developers with investors looking to fund different real estate projects and get good returns.
As you consider getting into real estate crowdfunding, be sure to conduct thorough due diligence and carefully select crowdfunding opportunities, as risks can vary. The success of these investments often relies on the performance of the underlying real estate projects and the management of the crowdfunding platform.
Pros
Diversification: Real estate crowdfunding allows investors to spread their capital across multiple properties and projects. This diversification helps mitigate overall risk.
Accessibility: Crowdfunding platforms allow investors to participate with relatively smaller amounts of capital, making it more accessible to a broader range of individuals.
Transparency and information: Crowdfunding platforms provide detailed information about the properties and projects available for investment. This transparency allows investors to make more informed decisions and conduct due diligence before committing their funds.
Cons
Risk of loss: As with any investment, there is a risk of losing capital in real estate crowdfunding. Property values can decline, projects can face delays or complications and not all projects may perform as expected.
Lack of control: Investors in real estate crowdfunding typically have limited control over the management and decision-making of the underlying properties or projects. Decisions are typically made by the project sponsors or developers.
Liquidity constraints: Real estate investments through crowdfunding platforms are often illiquid. It may be challenging to sell your investment before the project's completion, potentially tying up your capital for an extended period.
Purchase your own home
While purchasing your own home may not be a traditional investment in terms of generating rental income or capital gains, owning a primary residence offers several financial benefits. As a homeowner, you can build equity into the property as you pay down your mortgage. Over time, the home can also appreciate in value.
However, it is important to note that a primary residence is not a liquid asset, and the costs of homeownership extend beyond the initial purchase price. Additional expenses may include property taxes, maintenance and home insurance. Deciding to invest in your own home should be based on both your financial goals and your desire for a place to call your own.
Pros
Build equity: Once you buy a house and are making monthly mortgage payments, you build equity in your home over time. The home can also serve as a valuable asset that can be sold or passed down to future heirs.
Stability and control: Owning your own home provides stability and control over your living space. You can personalize and make improvements to the property to suit your needs and preferences without seeking landlord approval.
Tax benefits: Homeownership offers potential tax advantages, including deductions for mortgage interest, property taxes and sometimes even capital gains if you meet certain criteria when selling the home.
Cons
High initial costs: The upfront costs of purchasing a home can be substantial, including the down payment, closing costs and ongoing maintenance expenses. This can tie up a significant portion of your capital.
Illiquidity: Generally, physical properties including your primary residence are not liquid assets. Selling a home can take time, and it may not be easy to access the equity quickly if need be.
Maintenance and expenses: As a homeowner, you are responsible for maintenance, repairs, property taxes and homeowners insurance. These ongoing costs can add up and may be higher than expected.
Bottom Line
With $2 million, the investment opportunities in real estate are endless. Whether you choose to invest directly or passively, ensure that you align your investment strategy with your financial goals and risk tolerance.
Seek the advice of a financial advisor and real estate professional so they can help you make well informed decisions that align with your long term investment goals.
Bay Street Capital Holdings
Headquartered in Palo Alto, CA, Bay Street Capital Holdings is an independent Black-owned investment advisory, wealth management and financial planning firm. The firm was founded by William Huston who has been honored as one of Investopedia's Top 100 Financial Advisors from 2021-2023. Bay Street mainly focuses on managing and growing client portfolios while minimizing overall risk and volatility.
In 2023, Bay Street was recognized as a Finalist in the Wealthmanagement.com 2023 Industry Awards under the category of Asset Managers: Diversity, Equity and Inclusion for its work with Resthaven Properties.
Bay Street was founded with the mission of advocating for diversity and supporting emerging fund managers and entrepreneurs.
Sources
https://www.bankrate.com/investing/how-to-invest-in-real-estate/#flipping-houses
https://www.investopedia.com/investing/simple-ways-invest-real-estate/
https://mybrokerage.com/invest-2-million-dollars/
https://www.nerdwallet.com/article/investing/5-ways-to-invest-in-real-estate
