Here are 3 easy ways to invest in real estate without the hassle of buying a home

Here are 3 easy ways to invest in real estate without the hassle of buying a home

Here are 3 easy ways to invest in real estate without the hassle of buying a home

This seems to be a difficult time to get into real estate.

On the one hand, the Federal Reserve expects to raise interest rates more than once this year. High rates mean large mortgage payments – and this could hurt the real estate market.

On the other hand, consumer prices are rising at the fastest pace in 40 years. People are looking to save their purchasing power. And real estate is one of the most effective inflation-fighting assets.

As inflation rises, so does the cost of raw materials and labor needed to build a home. And that’s one of the reasons why you almost always see real estate prices rise during times of high inflation.

Well-chosen features can offer more than just price appreciation. Investors can also achieve a steady flow of rental income.

But when we all like the idea of ​​collecting passive income, there is also the hassle of being a landlord: mowing the lawn, fixing leaks and dealing with difficult tenants, among other headaches.

Nowadays, however, you have several options for investing in real estate without being a homeowner.

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Invest in REITs

REITs are real estate investment trusts owned by companies that own income-generating real estate, such as apartment buildings, shopping centers and office towers.

You might think of a REIT as a huge landlord: it owns a large number of properties, collects rent from tenants and pays rent to shareholders in the form of regular dividend payments.

To qualify as a REIT, a company must pay at least 90% of its taxable income to shareholders as dividends each year. In return, REITs do not pay income tax at the corporate level.

Of course, REITs can still feel rough times. During the epidemic-induced recession in early 2020, several REITs reduced their dividends. Their share price also fell due to selling in the market.

Some REITs, on the other hand, manage to distribute reliable dividends through thick and thin. Realty income, for example, pays monthly dividends and has increased 115 dividends since it went public in 1994.

Investing in REITs is easy because they are publicly traded.

Unlike buying a home – where transactions can take weeks or even months to close – you can buy or sell shares at REIT at any time throughout the trading day. This makes REITs one of the most liquid real estate investment options available.

Also, your investment can be as small or as large as you like – be it 100 or $ 100,000. Buying a home usually requires a hefty down payment and a mortgage, you can buy shares at a REIT with as much money as you want to spend.

Although REITs are not known to be the hottest stocks on the stock market, some have given dazzling returns: In 2021, the FTSE NAREIT All Equity REITs Index – which tracks publicly traded REITs in the United States – rose 41.3%, topping the S&P 500’s top 28 already. % Profit.

The sector is also seeing increased consolidation. Last year, the total total mergers and acquisitions in REIT were কাল 140 billion.

In February, Blackstone announced that it would acquire the preferred apartment community (APTS) that owns the rental apartment, making all cash transactions worth $ 5.8 billion. If large asset managers are taking important steps in space, retail investors may want to pay attention.

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Invest in an online crowdfunding platform

Crowdfunding has become a buzzword in recent years. It refers to the practice of financing a project by collecting a small amount of money from a large number of people.

Nowadays, many crowdfunding investing platforms allow you to own a small percentage of physical real estate – from rental property to commercial buildings to land parcels. Their popularity is growing exponentially as they cater to different types of investors with different budgets.

Some options target reputable investors, and some platforms allow them to participate in individual transactions with minimal investment that reaches thousands of dollars. To be a recognized investor, you must exceed নেট 1 million in net worth or earnings of $ 200,000 (or $ 300,000 together) in the last two years.

If you are not a reputable investor, there are many options that allow you to invest a small amount if you want – even 100.

Such platforms simplify the process and make real estate investments more accessible to the general public by reducing barriers to entry. Instead of paying down thousands of dollars for the house you want to rent, you can invest the sum of your choice to buy shares in the property.

Some crowdfunding platforms also raise money for development projects from investors. These deals usually require long-term commitment from investors and offer a different set of risk-reward profiles than buying shares in an established income-generating rental property. For example, development may be delayed and you may not be able to earn rental within your expected time frame.

Crowdfunded real estate deal sponsors usually charge a fee from investors – typically 0.5% to 2.5% of what you invest.

Invest in ETFs

You need more than luck to succeed in affiliate business. If you are looking for an easier, more diverse way to invest in real estate, consider an exchange-traded fund.

You can think of an ETF as a portfolio of stocks. And as the name suggests, ETFs trade on major exchanges, which makes it convenient for them to trade.

Investors use ETFs to gain access to a diversified portfolio. You don’t have to worry about which stocks to buy and sell. Some ETFs passively track an index, others are actively managed. In return for managing the funds, they all charge a fee – which is called the management cost ratio.

Vanguard Real Estate ETF (VNQ), for example, provides investors with extensive exposure to the US REIT. The fund has 166 stocks and total assets of $ 81.8 billion. Over the past 10 years, VNQ has provided an average annual return of 9.6%. Its management cost ratio is 0.12%.

You can also look at the Real Estate Select Sector SPDR Fund (XLRE), which aims to replicate the real estate sector in the S&P 500 index. It currently has 29 holdings and an expense ratio of 0.10%. Since the fund’s inception in October 2015, it has provided an average annual return of 10.6%.

Bottom line

Investing in real estate is not without its risks – far from it.

While real estate ownership can help you maintain inflation and make a passive income, property prices do not always rise. Tenants can also have trouble paying rent, so the income flow that landlords rely on can be particularly flawed.

That being said, real estate has historically been one of the most reliable ways to create wealth – especially in times of hot inflation. And today, investment vehicles like REITs, crowdfunding companies and ETFs make real estate ownership easier.

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This article provides information only and should not be construed as advice. It is provided without any warranty.

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