While many people find real estate investing to be a less volatile choice than the stock market, it still requires quite a bit of research in order to make the best choices. The real estate market is ever-changing, and here are some of the passive real estate investment trends we’re seeing in 2018.
4 Passive Real Estate Investment Trends for 2018 (and Beyond)
1. Short-Term Rentals
Buy it, find a long-term tenant, and rent it. While this was the way many real estate investors made their primary income in the past, the scene is shifting to include more short-term rentals. One of the rising passive real estate trends is short rentals with quick tenant turnover — particularly in urban areas or places people seek out to travel on vacation.
Your target demographic may be a professional who’s traveling on business for a week and wants more comfort than they can get in a hotel room, or it could be a family looking for a place to spread out a bit as they vacation at the beach. This will depend on where your property is located. Either way, you'll find that the rental rates are much higher for short-term rentals. While this strategy requires more management and a constant quest for tenants, it can be an attractive way to make the most from your real estate properties.
2. Spotty Appreciation
Over the past year or so, we’ve seen certain areas boom (particularly in large cities), while other areas struggle to keep up. As a result of this, boom areas are enjoying healthy appreciation rates as properties in other places struggle to increase in value.
For this reason, we don’t suggest making real estate investments based on the real estate market of the country as a whole. Instead, research and target the economy and market in specific areas. This will help you better minimize your risk and find places that will earn a healthy passive income even as the appreciation rates continue to rise.
3. Less Square Footage
By less square footage, we don’t mean a move into the tiny house territory. Rather, more people — and particularly young professionals — are looking for rental properties in urban locations that put them closer to their jobs. This desire to bike or take a short car ride instead of an hour long commute to work has many renters willing to sacrifice space for convenience.
This means that one of the passive real estate investment trends to watch out for is smaller spaces that attract tenants who are looking for more affordable places to rent. Depending on the area you’re targeting, this could mean a modest townhouse or a studio apartment. Either way, everyone in the equation comes out a winner. Your renters can find a place that satisfies their needs at a lower price and you make a passive income with less maintenance and worry than you’d have with a larger property.
4. Restructuring Due to Tax Changes
One of the biggest passive real estate investment trends we’re seeing is a move towards restructuring the way investments are held in order to take advantages of recent changes to the tax code. Any rental income earned by a pass-through organization such as an LLC will now be taxed at a rate of 29.6 percent (down from the previous rate of 37 percent). In addition to this, owners of pass-through organizations will now be able to deduct 20 percent of the business’ income.
If you have a real estate investment portfolio or are thinking about starting your real estate investing journey, make sure to get legal and accounting advice on the best way to structure your new business. Failing to do so could mean that you miss out on significant amount of money each year.
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