Take a cue from the Property Brothers: Real estate can be a money-maker. But you don't necessarily need to buy a home to get started. In fact, investing in real estate is a fairly common way for investors to diversify their portfolios, and it can be easier than you think.
"Among all the private investment opportunities, real estate typically outperforms other asset classes and is usually less volatile," Brian Dally, CEO and cofounder of Groundfloor, a firm that lends investor money to house-flippers and other developers, told CNBC last year. "People are familiar with the idea of homeownership," he said, "so real estate investing isn't overly complicated to comprehend."
Here are a couple of ways you can invest in the real estate market without a lot of money:
"Real estate investment trusts," or REITs, are probably the easiest way to invest in real estate for most people. REITs are pooled investor assets, so when you purchase one, you're investing in commercial properties like apartment buildings or hotels.
They typically offer investors higher dividends than stocks or bonds, and you can buy or sell them on the stock exchanges, like stocks or ETFs.
One example, STAG Industrial, is a REIT that invests in industrial properties around the county, like warehouses and distribution centers. STAG and other REITs are generally listed on the New York Stock Exchange and you can buy shares the same way you would other stocks.
Several different online platforms let investors without a lot of money invest in commercial real estate, like office buildings and apartment complexes. For example, investors can buy shares of a single project, like a commercial office building, for $100 each. Once the project is completed, investors can see a return as their shares appreciate and the building's tenants pay rent, which is divvied up and paid out like a dividend.
Crowdfunding has become increasingly common in recent years and is used to fund a variety of projects, including film productions. Some of the more popular real estate crowdfunding platforms include CrowdStreet and Fundrise.
There's no guarantee that a project will be completed and ultimately provide investors with a return, though. It isn't always easy to get your money out on short notice and some platforms charge investors large fees.
Investing in property, especially commercial property, can be a good way to diversify your portfolio and potentially lead to high returns, but it comes with unique risks.
Real estate can be volatile, though it is generally less volatile, on a day-to-day basis, than stocks. For commercial real estate investors, there's also cash flow to worry about: If the economy goes into recession, there's a chance that businesses could shutter, causing properties to lose tenants, revenue, and value.
So doing your research, especially on individual projects or investments, is incredibly important. Still, investing in real estate is a relatively easy route for the average investor looking to diversify their holdings.
"Global real estate is an enormous part of the global economy," Daniel Kern, a certified financial planner and chief investment strategist at Boston-based TFC Financial Management, told CNBC in 2016. "It should have a role in an investor's portfolio."
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