What’s the easiest way to invest in real estate? That is a simple enough question. I’m sure this won’t come as a surprise because there are in fact some fairly difficult ways to invest in real estate.
To illustrate the point, here would be some really difficult ways to invest in real estate.
- flipping distressed properties
- buying land and developing it
Let’s assume we are not really interested in taking on any of the very substantial headaches, costs, and liabilities that are part and parcel of those kinds of approaches.
But if you are interested in a complete list, this article explains all the ways to invest in real estate.
A bit of history
Hopefully, you haven’t switched off or clicked away already, so I’ll be quick.
I just realized, putting this together, that in fact as a very young child I started investing in real estate before I could even crawl. As soon as each of us was born, our grandfather gave all of his grandchildren accounts in what was called a local building society.
Building societies exist in the UK, Australia, and New Zealand and are a bit like US credit unions. When you open an account and start saving you become a member of an organization that makes mortgage loans to other members who buy usually their primary home.
Building societies have been around in English-speaking countries since the 18th-century and were a cornerstone of cooperative finance.
I think our grandfather started us off with a small capital sum, a pound probably. Of course, a pound back then was a fair sum of money. The idea was that we would add to our account over the years as we were growing up.
It worked. It did instill a saving habit and by the time I graduated from college and started my first job I had a little something to help get me started.
The point being, the idea of investing in other people’s mortgages was the first kind of investment I learned about. So it’s been around for a while.
21st-century real estate investing – crowdfunding
As with many areas of modern life; technology, the internet, and social media have inspired the creation of new ways to invest in real estate. Real estate crowdfunding is one such innovation that has taken off in recent years.
So real estate crowdfunding comes in a variety of shapes and sizes. Many crowdfunding platforms are also Real Estate Investment Trusts or REITs. There are publically traded REIT Exchange-Traded Funds or ETFs, and private REITs and they work differently in significant ways.
But firstly REITs in the US were created by an act of Congress in 1960 and are regulated by the Securities and Exchange Commission.
So there are rules an organization has to follow to qualify as a REIT. It means they have to invest nearly all their capital in income-generating real estate and they have to distribute nearly all of their net revenues to their members or shareholders.
There are other tax filing and organizational requirements to qualify and maintain the status of a REIT.
Publically traded REIT ETFs
You can buy and sell publically traded REIT ETFs through any regular brokerage platform.
Here is an article that compares some popular brokerage platforms. All of these platforms will allow you to buy and sell publically traded REIT ETFs with little or no fees or commission.
If you want to dive into this area, you will find online lists of REIT ETFs. For US investors, the National Association of Real Estate Investment Trusts, Nareit, maintains a list of REIT ETFs.
The list itself doesn’t really help you analyze the differences between these ETFs, but it gives you the ticker symbol and a link to Yahoo Finance which will give you good information on the financial fundamentals, price history, and such. If you click on the Profile tab in Yahoo Finance it will give you the Morningstar fund category, which is good for comparing between funds, and a summary of what the fund does.
As you will see there are about 20 or more of these now. They all tend to be rather general and diversified. Some are global while others limit themselves to specific geographic regions and yet others are focused on different real estate sectors such as retail or residential.
It is very easy to invest in publically traded REIT ETFs as noted above. They are very liquid and you can buy and sell them within a matter of seconds on a whim. If you so choose.
I guess what I am trying to say is that it is very easy to invest in publically traded REIT ETFs. And, they make up a large part of the Real Estate sector of the economy. The fact that they are so liquid and easily traded means that anyone and everyone can and will pile into them and out of them if big money institutions decide to favor or disfavor them.
So while their market prices will be attached very firmly to the Real Estate sector, their market price, and value will fluctuate up and down as the fortunes of the sector vary and as the overall stock market, itself moves up and down.
So publically traded REIT ETFs are an easy way to invest in real estate. But you are unlikely to build a portfolio position that is completely disconnected from general market gyrations.
Private REITs are just that. You have to apply to open an account and become a member. In a way, these are a bit more like the building societies of my youth.
Private REITs often have a wide range of real estate investment offerings. All the investment possibilities will comprise participation in a variety of real estate projects. REITs will differ in their areas of focus, whether that is in a specific geographic area, a specific type of real estate project such as retail, residential, commercial, or industrial. REITs will also differ in their level and depth of involvement in real estate projects.
Real estate projects, from planning through development, construction, and marketing to tenants involve many specialist services. Each of those specialist services carries its own cost and many REITs seek to control these costs by performing those services in-house.
The different investment opportunities that private REITs offer their members consist of different packages of participation in underlying real estate projects. Sometimes you can invest directly in individual projects, other times you are restricted to investing in packages or portfolios of projects.
At the high end, there are private REITs that will and can only allow accredited investors to invest with them. To be an accredited investor means you have to have either,
- an annual income of over $200,000 for an individual and $300,000 for a couple for at least two years
- net worth in excess of $1 million
- be otherwise qualified by virtue of professional expertise.
In exchange for establishing you’re a bonafide accredited investor, a private REIT will often give you access to investing, usually a minimum amount of $25,000 directly in individual income-generating real estate properties. That can be highly lucrative. It is also potentially highly risky.
As an accredited investor, you may have a taken a stake in a specific retail park or multi-family development. That stake could double your money in five years. It could also result in a total loss if the project goes south.
Be all that as it may, and notwithstanding the substantial upside possibilities and downside risks, that hardly qualifies as an easy way to invest in real estate.
At the easier end
As I said REITs will often have a much easier and more accessible way to invest. Some REITs have made it their mission to make real estate investing accessible even for people who are able or are only willing to scrape together a few dollars a month to invest.
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Diversyfund is an example of a REIT with a low barrier to entry.
You can start investing with Diversyfund with as little as $500. Diversyfund is a real estate crowdfunding platform. At the low entry-level you will be investing in the Diversyfund REIT. You can also grow your participation as you grow your investment and at higher investment levels, with Diversyfund more opportunities open up to investing in more targeted packages.
It is important to note that the way private REITs are set up will usually involve you in making regular contributions and tying up your money for some time, typically years. This way you will see the best results.
So don’t expect to start investing with a private REIT one day, then change your mind a few months later and try to liquidate your position without accepting a loss.
So what’s the easiest way to invest in real estate?
Sorry but I have to give you two answers.
1. Investing in REIT Exchange Traded Funds, or ETFs through a regular broker is super easy. But your results will still to some extent be at the mercy of the fortunes of the stock market in general.
2. Signing up with Diversyfund and set up a regular monthly payment into their fund. You will be thanking yourself you did this, years from now.
Questions and answers
Q. What is the best real estate investment for beginners?
A. The general consensus is that the best way for beginners to invest in real estate is to buy REIT Exchange Traded Funds through a regular broker or invest in a private REIT through an online platform. Personally, I think the second option is the best.
Q. Can you invest in real estate with little money?
A. Yes. Open an account through an app on your smartphone with Diversyfund and you can start investing for as little as $500.
Q. How can I make a lot of money in real estate?
A. You stand to make the most money in real estate through appreciation of the value of real properties. The appreciation in value either comes about because the location becomes more attractive or through renovations or repairs that you as the owner conduct of a combination of these factors. You either capitalize on the appreciation in value through being able to command higher rents in the market or through the sale of the property.
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Disclaimer: I am not a financial professional. All the information on this website and in this article is for information purposes only and should not be taken as personalized investment advice, good or bad. You should check with your financial advisor before making any investment decisions to ensure they are suitable for you.
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