Financial advisors and investment experts alike will tell you to invest a percentage of your portfolio in real estate. Because real estate is a tangible asset that can bring in immediate returns and almost always appreciates over time, it makes a great alternate investment and long-term stabilizing force in almost any investment portfolio. However, getting into real estate investing – even on a small scale – can be intimidating, especially if your experience in real estate doesn’t reach much farther than buying and/or selling your home. So, what can you do?
Actually, there are quite a few opportunities open to investors who do not want to make a career out of real estate investing and who do not necessarily have the time to give themselves a complete education on the real estate market. In fact, some of these opportunities are not only great low-risk options for newer real estate investors, but they are also potentially more lucrative and more passive than traditional forms of real estate investment, like directly purchasing rental properties or flipping houses.
Buy Stock in an REIT
One of the most popular of these is to buy stock in a real estate investment trust (REIT). This is the most passive form of real estate investment on the market, as – instead of purchasing a piece of real estate outright – investors choose a real estate investment trust and actually purchase shares of the trust, itself. Then the REIT pools its investors’ capital to purchase larger, more profitable properties than any of its investors could have purchased individually.
Why is this a good route for investors who don’t have a great deal of experience in real estate? First of all, it allows you access to larger purchases than you could make on your own. By pooling your resources with those of other investors, you can all profit from owning equity in larger pieces of residential and/or commercial real estate.
Second, REITs make a lot of sense for new investors because the members of the trust have significantly more experience with real estate investing than you do. They understand the market(s) they’re working in, and they know how to spot a great deal for their investors. Also, it is in their best interest to find and invest in profitable properties because the value of their shares depends on the success of their investors.
Real Estate Crowdfunding Opportunities
Of course, REITs are not the only alternate investment opportunities out there. One of the newest options for accredited investors is real estate crowdfunding. If you have an annual income of more than $200,000 on your own, your net annual income with your spouse is more than $300,000, and/or your total net worth is more than $1 million (not including the value of the property you claim as your primary residence), then you qualify as an accredited investor. This allows you access to real estate crowdfunding platforms, which offer some very lucrative and exciting investment opportunities.
Investing in a crowdfunded property is a lot like investing in an REIT, as you pool your investment capital with other investors in exchange for equity in the property. The big difference here is that you maintain control over which properties you invest in, rather than relinquishing that control to your REIT.
This opens up a lot of opportunities, as you can invest as much or as little (depending on the specific minimums of the platform and/or properties you’re investing in) as you want. You can spread your capital across multiple properties, and you can specifically choose to invest in properties in your community, as well.
Be aware, though, that investing in crowdfunded real estate does require a bit more knowledge of the real estate market. You should familiarize yourself with the market(s) you’re investing in, including market trends over the past 18 months (at a minimum) and potential competition in the market. With this information, you should be able to make informed decisions about your investments and use them to diversify and grow your investment portfolio.