Do you want to invest in real estate, but don’t have the funds to purchase an entire property? This is possible! We’ll explain how.
Real estate investing can bring people a lot of profit – but to do so, first you need to INVEST, or rather, to purchase a property that you’ll profit from, right?
It is possible to invest in real estate even if you don’t purchase a property. Not everyone has hundreds of thousands of dollars ready to invest. However, there are ways you can participate in the market and even profit from it without being a homeowner. Here’s how!
A real estate investment trust (REIT) is a company that is owner and manager of real estate and real estate-related assets, such as mortgages and mortgage bonds. The biggest part of REIT’s profit has to come from some real estate-linked source.
People can invest in REITs, as these companies provide cash flows to people who invest in them. For example, if you invest in REIT with dividend reinvestment, you can slowly grow your portfolio until you reach the moment when you can purchase individual properties on your own – or continue to invest in managed real estate portfolio, if this is something you prefer.
Invest In Real Estate Focused Company
There are some companies that own and manage real estate but don’t have the structure of REIT. These companies have stocks that typically pay a rather lower dividend than REIT, but there are more options for reinvesting profits and expanding.
Many companies behave similarly to REITs, although real estate isn’t their primary service – for example, hotel chains, shopping mall managers, and resort operators. Of course, this doesn’t mean there aren’t traditional real estate companies you can invest in, such as RE/MAX Holdings Inc, CBRE Group, or Equity One.
Just make sure you do proper research before making your investment decision. You can risk a lot if you put all the eggs in one basket.
If you want to invest in real estate, why stick just to existing properties and companies? The construction industry is responsible for developing new areas and building new houses. These companies can be involved with several aspects of the home construction process.
If you plan on investing in home construction companies, make sure to look at all the aspects of the said business. Ask yourself what the company is focused on, and if this corresponds with your needs. Also, you should look at the local market and economy, as these two are connected. If the job growth is strong, people are looking for new homes to buy. However, when the economy isn’t as good, new homes aren’t sought after.
Real Estate Mutual Fund
When you invest in real estate, one of the most important aspects is diversification. However, achieving it can be quite difficult in the real estate. For example, if you invest in stocks, you can find a wide range of investments. Since shares of many companies can be found at a low price, you can reach a diversified portfolio through careful planning.
With real estate, however, things go quite different. A single asset here costs six digits! This makes diversification challenging.
To achieve diversification, real estate investors can invest into real estate focused mutual funds, index funds, as well as ETFs. Some of these funds work the same as traditional mutual funds, invested in real estate stock. Others are more focused on REITs or even on direct purchases of real estate.
The Bottom Line
Overall, real estate investing is a risky business, especially if you feel like you’re getting your last cent into that property you’re eyeing. Luckily, there are more affordable ways you can be a part of the business, and that is to invest in real estate without purchasing a property.
Whether you choose to invest in REIT, real estate mutual fund, or some other type of company, you should always plan ahead and know precisely what you’re doing. This way, you can prevent possible losses and ensure you’re still a part of the industry.