These real estate investing basics aim to give you the information you need on these topics: real estate investment trusts (REITs), second homes in the Sunbelt as investments, and investing in timeshares

Real estate is property you can invest in and maybe make a profit on. It’s easier to get financing for real estate investments than for stocks because real estate tends to be less volatile and easier to appraise. It also rarely drops drastically overnight, as some stocks do from time to time.

But, at the same time, you often have to “feed” your property, as real estate investors say—that is, invest additional funds to cover the shortfall between rents and expenses. That can sharply cut your potential gains.

Below is a look at an alternative to directly owing property:

The Growing Power of Dividends Learn everything you need to know in '7 Winning Strategies for Dividend Investors' for FREE from The Successful Investor. The Best Canadian Dividend Stocks to Buy: REITS Canada and other Top Canadian Dividend Stocks.  I consent to receiving information from The Successful Investor via email. I understand I can unsubscribe from these updates at any time.

Real estate investing basics: Start with a real estate investment trust (REIT)

Real estate investment trusts (REITs) invest in income-producing real estate such as office buildings and hotels. That’s a segment of the market often difficult for investors to access through direct ownership of property. Moreover, REITs save Successful Investors the cost, work and risk of owning investment property themselves.

The best real estate investment trusts have good management and balance sheets strong enough to weather an economic downturn. They also have high-quality tenants, and they carefully match their debt obligations with income from their leases. The best ones still do well despite an economic slowdown, and they take advantage of low interest rates to refinance long-term mortgages.

Outside of REITs, if you’re investing in real estate primarily for profit, you could look at multiple-unit rental housing or shopping malls, especially those with big parking lots or extra land. Investments like these can give Successful Investors current income, plus long-term development possibilities. That’s a potent combination for patient investors. And of course, location is the most crucial part when it comes to real estate investing in Canada and in any country.

Bonus Tip: Real estate investing basics: Are timeshares a good investment?

Time-share investments are marketed as something of a cross between a real-estate investment and a hedge against rising vacation costs due to inflation. But, generally speaking, only the land portion of any real-estate investment provides a hedge against inflation. The buildings and equipment are going to depreciate, just like your car, though maybe not as quickly. This depreciation poses an even greater risk if you overpay for the asset to begin with.

If there is any profit to be squeezed out of the land portion of a timeshare property—for instance, by building additional units on the existing land, or adding floors to the existing building—it generally will go to the management of the facility, not to holders of individual timeshares. But construction and expansion may inconvenience timeshare holders. It may reduce the value of their shares, or cost them money or value in other ways.

It’s a heads-you-break-even, tails-you-lose situation. Buying a timeshare is unlikely to cut your long-term vacation costs, much less produce anything resembling a profit. And you face the risk that the property, the location or the operator will run into problems, and your purchase will turn out to be a colossal disappointment. If so, you’re stuck with it.

Bonus Tip 2: Real estate investing basics: Be aware of the risks of Sunbelt properties

We all know how long winter lasts, and many Canadians spend part or all of that harsh winter in Florida or other southern locales. Despite rebounding home prices in key U.S. markets, many investors are buying second homes with the belief that further price increases are inevitable and will make those winter havens good investments.

However, costs may be higher than you think. Beyond the purchase price, you’ll also have to pay real estate taxes and condo fees, if that’s your choice of a dwelling.

On top of that, there’s insurance and maintenance. In addition, due to the heat and humidity, you have to run the air conditioning year-round to avoid mould. By the time the housing market stabilizes, new condos will come up for sale and compete against decades-old units.

Buying a second home in the U.S. Sunbelt may be a good personal lifestyle choice. But it’s a risky investment, and a bad place for any significant portion of your retirement savings.

REITs are a great starting point for investing in real estate, especially because investing in second homes in the U.S. and timeshares are both risky investments. What other forms of real estate investment have you made?

What are your thoughts on timeshares? Do you like them as an investment or do you feel like their value is overrated?