Posted on February 03, 2022.

Key Points

• There's a lot of money to be made by investing in real estate.
• Owning rental properties could mean collecting steady rental income and enjoying huge gains down the line.
• Holding REITs could mean collecting above-average dividends without taking on the risk of buying physical properties.

Earning money often means having to hustle. But that's not always the case.

If you're willing to start investing in real estate, you'll have a prime opportunity to grow wealth while you sit back and do nothing. Here's how.

1. Buy a rental property

Owning rental properties isn't without risk. When you buy a home to rent out on either a long- or short-term basis, you face a host of expenses that could rise over time. These include property taxes, maintenance, and repairs.

There's also the possibility that a tenant will damage your home to the point where the security deposit you collect can't come close to covering everything that needs to be fixed. And speaking of tenants, when you buy a rental property, they're not guaranteed. You could wind up with a vacant rental for weeks or months on end, depending on different circumstances.

But for the most part, buying a rental property is still worthwhile. Not only is it a great way to generate passive income, but homes have a tendency to appreciate in value over time. And so even if you end up having to spend a lot of money to maintain your rental, you might still end up in a position where you can sell it at a premium down the line.

If you're thinking, "Wait a minute -- being a landlord is hardly akin to making money in my sleep," think again. Just because you own a rental property doesn't mean you have to involve yourself in landlord-related work. Property managers let you outsource everything from finding tenants to collecting rent to overseeing upkeep. And while those property manager fees will eat into your profits, they may be more than worth paying.

2. Buy REITs

REITs, or real estate investment trusts, allow you to invest in real estate without taking on the risk that comes with owning actual property. In fact, REITs are comparable to stocks in that many trade publicly, so you can track their share price and performance to know what you're getting into.

REITs make money by operating different types of properties, and the great thing about them is that they offer two opportunities for you to profit. First, their value can grow, just as you can buy stock at a certain price point and see its share price rise. Secondly, REITs are required to pay out at least 90% of their taxable income in dividend form. As such, they tend to offer higher dividends than your typical stock.

Furthermore, when you own REITs, there's nothing to do as an investor other than sit back, track their performance as you see fit, and wait to collect your dividends. Plus, REITs are far more liquid than physical properties, so that alone might make them a better fit from a risk perspective.

Get paid to do nothing

It's not every day that you get the chance to earn money without having to lift a finger. Owning rental properties and holding REITs in your portfolio could make you very wealthy over time, so both options are worth looking into, especially if you've yet to dabble in the world of real estate.

Updated on February 09, 2022

KEY POINTS

• The average home spent just 61 days on the market, according to a January reading from Realtor.com. That is the fastest pace ever recorded.
• Homes sold even faster in several metropolitan markets. In Nashville, the average was just 29 days. In Denver, 35 days. The pace was 38 days in Las Vegas and 39 days in Seattle.
• The market is suffering from super lean supply. New listings in January were down 9% year-over-year. Total inventory was down 28%.

CNBC Real Estate