Another way to diversify is to invest in different types of real-estate-based investments. There may be endless options, but some of the more popular types of real estate investments include:

1. Rental Homes. A great “bread and butter” investment, you can get started by either renting out a home you move out of when your purchase a new one, or purchasing a home specifically for the purpose of renting. Either way, you’ll want to do your math! Perhaps the biggest mistake people make with real estate is counting on appreciation while paying too little attention to cash flow. We think that cash flow should be the cake, and appreciation—if you get it—makes for wonderful “icing on the cake.” (Truth Concepts Real Estate Analysis Calculator can be used to calculate returns.)

Done wisely, buy-and-hold rental homes can allow you to take advantage of long-term cash flow as well as potential appreciation. You can keep it for years or even decades until market conditions are excellent for selling, while your tenants pay your mortgage and other costs.

2. Commercial Rental Real Estate. This is similar to rental homes or residential real estate that you own and rent out, except these properties are commercial in nature, such as office buildings, warehouses, or storefronts.

Commercial real estate can be an excellent investment, although you might expect higher start-up costs. Commercial markets can also be more fickle than residential markets, so be aware. While residential markets tend to be fairly stable, it is not unusual for office buildings to sit empty during a downturn, or for a “hot neighborhood” to turn sluggish when the next hot neighborhood surfaces (one reason to consider shorter-term bridge loan investments or funds when it comes to commercial real estate).

3. Commercial Bridge Loans. You may be familiar with residential bridge loans as a temporary financing tool that allow a homeowner buying their next home to access the equity in their current home until they can sell it. With a commercial bridge loan, the temporary financing is done on a commercial property, such as a hotel, office or apartment building. A “bridge loan” puts financing in place while a property is improved or rehabbed, or while an income history is established that can allow the owner to secure permanent financing at more favorable terms.

When you invest in bridge loans, you are technically a “private lender,” rather than an investor. There are multiple opportunities for private lenders, from short-term first deeds of trust (often one year term), to bridge loan funds, which require longer terms, yet offer higher returns. (Bridge loan funds are available to accredited investors only, with one million dollars in net worth, not counting their residence, or $250k annual income/$300k for couples.)

Want more cash flow? Our clients who become private lenders earn at least 7% annually, and yes, you can use a self-directed IRA. If you have lazy assets and would like monthly checks, let us know you’d like to put your dollars to work!

4. Apartment Buildings. Perhaps the “gold standard” of real estate investments, multi-family apartment buildings typically produce higher returns than rental homes. A well-managed apartment building in a desirable area can generate low double-digit returns consistently, plus nice tax advantages and the potential for future appreciation!

The downside of apartment buildings is that it’s not a beginner’s game. There can be significant financial investment, plus managerial experience required to do it well. Done poorly, you can end up losing money and/or dealing with nightmare tenants or lawsuits.

5. Real Estate Equity Investing. We can make referrals to a company with an excellent track record of happy clients that offers the upsides of investing in apartment buildings without the burdens of selecting, purchasing and managing them. They offer investors a fractional share of equity, along with healthy cash flow and a plan that puts their initial investment back in their pocket by the fourth year… while still maintaining an equity position and continued cash flow!

This company works with accredited investors only, and if you are qualified, we’d be happy to get you further information on request. (Ask us about “real estate equity investing”.)

6. “Flipping” Homes. In spite of the popularity of cable TV shows that make this look easy, it’s not! It’s trickier and less profitable than you think. Quality contractors aren’t cheap, and if you do the work yourself, you have to factor in the value of your time. There can be big risks involved, as a dip in the market can wipe out your profits, and your money has a cost, which is ignored by misleading “reality show math.” As former Seattle realtor Kate Phillips notes, TV shows fail to factor in interest costs, lending costs, or closing costs such as title, escrow, so consider these shows as entertainment, not factual representations of investments.

7. Lease-to-own homes. Investing in lease-to-own single family homes can be a successful strategy in certain markets, such as those with depressed housing prices. According to professional real estate investor, Jimmy Vreeland, lease-to-own strategies offer unique advantages to investors willing to learn how to do it well. Lease-to-own sellers/landlords experience decreased management burdens because tenants are hopeful buyers willing to care for their future property and assume maintenance tasks themselves.

8. REITs. REITs are very popular with investors right now because of recent favorable returns and the ease of investment. Most function much like a mutual fund or a private equity fund and offer a “hands off” way to invest in real estate. However, REITs can offer similar downsides as mutual funds, performing poorly in a down economy. According to a New York Times article, during the financial crisis, “Just as stocks fell fast and furiously, so, too, did most REIT shares.” In 2008 alone, commercial property REITs (the majority) dropped 49% in value, while mortgage REITs lost 42%. Thus, even though some REITs have revised strategies after such losses, we don’t recommend then as a proven diversification strategy.

9. Land. While land can have its place in a portfolio, it’s not one we recommend for most investors. Unless the land is being leased (perhaps for farming or camping), land does not typically produce cash flow. So purchasing land is usually speculative in nature—you’re hoping or assuming the price will rise—and while you wait, you’ve got property taxes to pay.

10. Part-time rentals. Like to travel? Fancy a vacation home? Savvy investors look for second homes that can earn money when they’re not there. This works especially well for properties with year-round demand, such as New York City condos, resort homes in Hawaii, or beachfront properties in Southern California or Florida. You can hire a management company to manage rentals, or manage them yourself using AirBnB.com or VRBO.com (vacation rentals by owner).

Of course, while you’re away… you can also rent our your “first” home, too! Laura Lavigne is a life coach with a travel bug who rents two rooms on AirBnB.com when at home. Then she packed her bags for a 6-month trip to Europe, renting out her entire home (to a single party, requiring no day-to-day management). In this way, she has all but eliminated her mortgage payment year-round, giving herself increased income and freedom, while building equity in a six-figure asset that also provides a “home base.”