As a seasoned investor, you know the importance of portfolio diversification. In order to reap the most financial reward from your investments, it’s pertinent that you invest your money where it has the most potential to grow.

This decision should not entirely be based on a gut feeling, it requires investigation and an understanding of what investment opportunities will be more worthwhile for your specific needs. Placing your money in the stock market can be risky, but its benefits are often so significant that, to many investors, the rewards outweigh the risk. While the stock market is still a prominent fixture in the investment realm, investors are starting to recognize the power that other opportunities hold, even above the performance and potential of the stock market.

The real estate market is beginning to gain more acclamation, with many investors placing more of their money into real estate than in the stock market. While investing in real estate is certainly advantageous for individuals seeking passive income, it also comes with its share of risks, as any form of investing would.

If you are considering adding real estate investing to your portfolio, here are two ways you can invest, along with the most common risks associated with each type of investing:

Rental Properties

If you live in an area where rental prices and rates are affordable, purchasing a rental property could be the best strategy for you. But be sure that the rent you can charge your future tenants is enough to cover your mortgage, any property taxes, potential repair costs, while also allowing you to make a profit. When actively renting out a property, your tenants will be your biggest risk. For example, if one of them leaves unexpectedly, you will need to fill their space as soon as possible so as not to lose out on monthly income. Or, if you have bad tenants, it could cost you in repairs.

Real Estate Investment Groups

If you want to invest in property but don’t want the responsibility of being a landlord, joining an investment group could prove advantageous for your wallet while allowing you to be more hands-off. However, this also means that you don’t have as much authority over what happens to the property as the company you are working through has the majority control.

After understanding these two very different ways to invest in real estate, along with the risks most commonly associate with each, you can make the most informed decision about how to invest in order to get the most bang for your buck.