Whether we think about it or not, most of us are likely investing in real estate just by owning a home. Even though we use our home for shelter, it is part of our investment portfolio, net worth, and likely our estate planning. That said, our investment in our home is just one way to invest in real estate.
Why invest in real estate?
Real estate investments are a great way to further diversify your stocks, bonds, and other types of investments. Real estate values can change on different cycles to stocks and bonds, making it a great diversification to your total portfolio.
How can I invest in real estate?
There are lots of ways to invest in real estate directly. Here are some quick ideas:
If you have the ability/desire, you can buy a vacation / rental home. Depending on the location, you can generate reliable income that can not only pay for expenses but also reap a profit for you as well.
It is not uncommon for first time home buyers to buy a duplex as their first home: living in one unit and renting out the 2nd unit. That 2nd unit rent can pay for the mortgage on the entire duplex!
Partner with a general contractor or handyman and invest in multiple units that can be rented out to both cover costs (including loan payments, repairs, etc.) and potentially some profit. All of these require you (and/or a partner) to be able to either take on significant debt OR have liquid funds at the ready to make these large purchases.
What if you don’t want to own physical property, but still want to invest in real estate?
There are investment vehicles where you do NOT have to own any physical real estate, and still diversify with real estate investments:
Real Estate Investment Trusts (REIT’s) come in many different flavors. REIT’s are investment vehicles that invest directly in real estate through properties or mortgages. REIT’s pay out dividends based on their taxable profits, as required by law. We buy shares of these just like shares of any company.
Real Estate Mutual Funds are mutual funds that invest in REIT’s, real-estate stocks and/or indices. These mutual funds are bought and sold just like any mutual fund.
Home Builder / Construction Funds are mutual or exchange traded funds that invest in companies that build homes and/or commercial properties. They also have holdings for wood, steel and various hardware components that are needed to build new properties. While technically not real estate, they closely track real estate trends from an investment perspective. “NAIL” is an ETF example of this.
The advantage with these options is that you can buy and sell like any other stock or mutual fund. No large cash infusion or taking on debt is needed for these options.
If you’d like to discuss any of these options or discuss what portion of your portfolio you might consider for real estate investments, please let me know!