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How can I reap the benefits of real estate investing without becoming a landlord?
Even if prices slow, real estate remains a strong investment.
But owning property can be troublesome. A lot of capital is tied up in a handful of properties. You also have to deal with the logistics of owning and managing a house, office or apartment.
Jeff Ross, a certified financial planner in Nashville, says investing in real estate is a great way to diversify your investment portfolio.
“But you only want to invest 5% of your portfolio in real estate,” he said. “If it reaches 10%, it’s on the high side.”
Invest in real estate equity through ETFs, mutual funds, or real estate investment funds to enjoy the benefits of real estate appreciation.
But this kind of volatility isn’t for everyone. Another option is to invest in real estate exposure, which offers a more fixed return.
real estate interests
Real estate investment trusts (REITs) are a common way to diversify your real estate equity. REITs are publicly traded companies that own income-producing properties (office buildings, hotels, apartment complexes, shopping malls) and provide people with the opportunity to invest in a real estate portfolio.
REITs are a way to hold a variety of real estate properties and provide dividend income as easily as buying stocks. But they are riskier than index funds.
“Anytime you think about a publicly traded REIT, which is basically a stock, there’s a lot more risk,” Ross said. “They’re focused on one area. It could be one property type, it could be a Geographically, if that industry or region gets hit, you feel it.”
Ross recommends investing in REITs through ETFs or mutual funds to take full advantage of REITs and further diversify your investments.
“The easiest way to invest in real estate is through a mutual fund or ETF,” Ross said.
Real estate ETFs, such as Vanguard’s VNQ, provide investors with publicly traded equity REITS and other real estate investments. Likewise, iShares’ IYR offers domestic real estate stocks and REITs.
Mutual funds are another way to diversify your long-term real estate investment strategy. T. Rowe Price Real Estate Fund (TRREX), with $5.3 billion in assets, is a giant among actively managed real estate mutual funds.
Newer online platforms such as Fundrise, Rich Uncles or Realty Mogul allow investors to access a diversified real estate portfolio at a much lower price than large funds.
Rich Uncles allows you to invest in its own REIT for as little as $500, or in its new student housing REIT, with a $5 minimum investment. Fundrise is another platform that has its own REITs with a minimum investment of $500.
Realty Mogul offers private investment deals, and you can also invest in its REITs with a minimum investment of $1,000.
While these can provide reliable investment returns and dividends, they are less liquid and investors should not expect to sell anytime soon. But online platforms can give you a clearer picture of what you’re buying.
“I like investing online because I can see the properties I’m investing in,” Ross said. “Typically, if you buy an ETF, a mutual fund or a REIT, it can be harder to see what you’re buying.”
No matter how you invest, “you have to know what kind of real estate you’re investing in,” he said.
real estate debt
Another way to make steady passive income through real estate is to invest in someone’s mortgage. Using a platform called PeerStreet, investors can back high-interest loans that provide regular fixed-income payouts.
“A lot of people want to invest in real estate without the equity-style risk,” said Brett Crosby, co-founder and chief operating officer of PeerStreet. “We make it accessible and some people are wary of that level of risk. Feel more reassured.”
Here’s how it works: PeerStreet purchases first-lien mortgages from a network of private lenders. Investors can search for investments on the site and select investments based on criteria such as home term, yield and loan-to-value ratio. These options are updated daily.
Alternatively, you can choose automatic investing by pre-selecting details that allow you to make investments that meet your criteria. Return on investment ranges from 6% to 9%, and typical deal terms on the site range from 6 to 36 months.
Other platforms for investing in real estate debt, such as AlphaFlow, offer portfolios of real estate loans rather than individual loan investments.
While mortgage-backed investing is nothing new, it used to be very difficult to invest personally. “If things do go bad, you need a team in place if you have to foreclose,” Crosby said. “We handle it all. We take active investing and make it passive. ”
While the company is working to expand its offerings to all investors, SEC regulations currently limit PeerStreet investments to accredited investors. For an individual to qualify as an accredited investor, you need to have earned an annual income of more than $200,000 in the past two years (with a spouse earning $300,000 a year) and have a reasonable expectation of earning the same level of income in the future. In addition, individuals with net worth in excess of $1 million (excluding the value of their primary residence) are also eligible.
CNN Business (New York) First published September 13, 2018: 1:37pm ET