Despite the home ownership rate reaching its lowest level in more than 50 years, Americans love real estate. Indeed, a survey conducted for Bankrate.com in July, 2016 revealed that real estate was seen as the best way to invest money over a 10-year period. This result is likely attributed to the dual stock market declines in 2000 and 2008, the lingering effects of the last recession and the idea that real estate is tangible and can be used and enjoyed. The true record of home prices over the last 100 years is a mere 0.6% a year over the rate of inflation, lagging far behind the growth of the economy.

The visceral appeal of real estate, coupled with concerns that the stock market won’t sustain its record high levels, corporate profits will decline and interest rates will increase, has also kept real estate in the forefront of potential investments. Like all investments, there are myriad ways to go about it, and here are five approaches to invest in real estate for the long-term, each with its own pros and cons. (Short-term investment or “flipping” properties is completely different and is a discussion for another time.)

“Direct” ownership – This may be the most romanticized way to invest in real estate. Direct ownership is when an individual (or couple) owns an income-producing property without other parties being involved so the level of investment is limited to the owner’s financial capacity. Often this is done through a limited liability company (LLC) which is easy to establish and can keep the property legally separate but all the financial aspects still flow from the LLC to the individual. The owner is responsible for managing the property (cost of maintenance and repairs, taxes, locating tenants, etc.) and accrues all the benefits and risks. A management company can be hired to handle maintenance and tenants but the cost is typically 10% of all income generated.

Often a homeowner who buys a new house will consider keeping the prior house as a rental property because they know the property and believe it will increase in value over time. But a rental property should have “positive cash flow” after all expenses are deducted from income. There is an added tax benefit because a portion of the property’s value is tax-deductible as depreciation even though it is not a direct cash expense. However, depreciation reduces the tax cost basis of the property so this tax benefit is recaptured (that is, the taxable gain is increased) when the property is sold.

There can be several nasty surprises with direct ownership. Even if a management company is hired, tenant and maintenance issues can be a real headache. The property may not appreciate as hoped and the aforementioned recapture of depreciation can eat into anticipated cash from a sale. And having only one property actually increases risk because when the property is vacant the expenses continue.

Direct ownership can be the starting point to build a successful, diversified real estate portfolio. The surest way to have a bad experience, though, is to not treat even a single rental property as a business rather than a hobby.

“Small” partnerships – A partnership of several investors who are still actively involved in the properties can increase the financial capacity to invest in properties and can also defray the time commitment. Such a partnership may slightly dilute the benefits of individual direct ownership but this added capacity can accelerate the growth of the real estate holdings. The partners are usually personally responsible for any debt taken on by the LLC.

The obvious shortcoming of such a partnership is a falling out among the partners or a partner who loses interest and leaves the other partners to either pick up the slack or put the investment at risk. A partnership should always involve an LLC with an operating agreement that is specific regarding partner responsibilities, decision-making, financial contributions, consequences of nonperformance and terms for buying other partners’ interest.

Limited partnerships – A limited partnership (LP) is typically organized by a managing partner who (hopefully) has expertise in the area of investment, makes all decisions, manages the operations of the LP and the properties and is compensated for his efforts. The limited partners, who must meet minimum financial criteria, provide funding in return for a share of the profits of the LP and then put their faith in the managing partners. LP’s can raise large amounts of money which enables them to invest in large apartment complexes, office buildings, shopping centers and the like.

Limited partners should familiarize themselves with the terms of the partnership agreement to be clear about how expenses and profits are shared, whether they have liability for the LP’s debt and the terms under which they can exit the partnership. LP’s often offer limited, if any, opportunities for partners to cash out until properties are sold.

The advantage of an LP is providing investors access to large projects with no time commitment. If the project is successful, an LP could ultimately provide higher returns than other vehicles. But LP’s also have a lack of liquidity, may tie up investor funds for very long periods of time and offer limited partners no input into investment decisions. Limited partners may have more to lose than managing partners, who get paid management fess regardless of how the investment is performing. The managing partner’s reputation may take a temporary hit but the managing partner is playing with OPM (Other People’s Money) and limited partners can be left holding the entire financial bag.

TO BE CONTINUED