5 WAYS TO INVEST IN REAL ESTATE

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REITs allow you to invest in real estate without the physical real estate. Often

compared to mutual funds, they are companies that own commercial real

estate such as office buildings, retail spaces, apartments, and hotels. REITs

tend to pay high dividends, which makes them a common investment in

retirement. Investors who do not need or want the regular income can

automatically reinvest those dividends to grow their investment further.

Are REITs a worthwhile investment? They can be, but they can also be varied

and complex. Some trade on an exchange like a stock; others are not publicly

traded. The type of REIT you purchase can be a key factor in the amount of

risk you are taking on, as non-traded REITs are not easily sold and might be

hard to value. New investors should generally stick to publicly traded REITs,

which you can purchase through brokerage firms.

For that, you will need a brokerage account. If you do not already have one,

opening one takes less than 15 minutes and many companies require no

initial investment (though the REIT itself will have an investment minimum).

You can also gain exposure to a more diversified selection of real estate

investments by buying into a fund that has interests in many REITs. You could

do this through a real estate ETF or by investing in a mutual fund that holds

shares of multiple REITs.

Real estate investment platforms connect real estate developers to investors

who want to finance projects, either through debt or equity. Investors hope to

receive monthly or quarterly distributions in exchange for taking on a

significant amount of risk and paying a fee to the platform. Like many real

estate investments, these are speculative and illiquid — you cannot easily

unload them the way you can trade a stock.

The rub is that you may need money to make money. Many of these platforms

are open only to accredited investors, defined by the Securities and Exchange

Commission as people who've earned income of more than $200,000

($300,000 with a spouse) in each of the last two years or have a net worth of

$1 million or more, not including a primary residence. Alternatives for those

who can't meet that requirement include Fundraise and Realty Mogul.

A lot of people do not intend to become a real estate investor when they first

start out. Many entered the market using a strategy sometimes called house

hacking, a term coined by Bigger Pockets, an online resource for real estate

investors. It means you are occupying your investment property, either by

renting out rooms, or by renting out units in a multi-unit building. House

hacking lets investors buy a property with up to four units and still qualify for a

residential loan. Of course, you can also buy and rent out an entire investment

property. Find one with combined expenses lower than the amount you can

charge in rent. And if you do not want to be the person who shows up with a

toolbelt to fix a leak or even the person who calls that person, you will also

need to pay a property manager. “If you manage it yourself, you will learn a lot

about the industry, and if you buy future properties, you will go into it with

more experience.

This is HGTV come to life: You invest in an underpriced home in need of a

little love, renovate it as inexpensively as possible and then resell it for a

profit. Called house flipping, the strategy is a wee bit harder than it looks on

TV. It is also more expensive than it used to be, given the current higher cost

of building materials and mortgage interest rates. Many house flippers aim to

pay for the homes in cash. There is a bigger element of risk, because so

much of the math behind flipping requires a fully accurate estimate of how

much repairs are going to cost, which is not an easy thing to do.

Suggestion: Find an experienced partner. “You have capital or time to

contribute, but you find a contractor who is good at estimating expenses or

managing the project.

The other risk of flipping is that the longer you hold the property, the less

money you make because you may be paying a mortgage without bringing in

any income. You can lower that risk by living in the house as you fix it up. This

works if most of the updates are cosmetic, and you do not mind a little dust.

Finally, to dip the very edge of your toe in the real estate waters, you could

rent part of your home. Such an arrangement can decrease housing costs,

potentially allowing people to stay in their homes as they continue to benefit

from price appreciation on their property.

Adding roommates can also make a mortgage payment more attainable for

younger people. But if you are not sure you are ready, you could try a site like

Airbnb. It is house hacking for the commitment-phobe: You do not have to

take on a long-term tenant, potential renters are at least prescreened by

Airbnb, and the company’s host guarantee provides protection against

damages.

Renting out a room feels a lot more accessible than the fancy concept of real

estate investing. If you have a spare room, you can rent it.

Like all investment decisions, the best real estate investments are the ones

that best serve you, the investor. Think about how much time you have, how

much capital you are willing to invest and whether you want to be the one who

deals with household issues when they inevitably come up. If you do not have

DIY skills, consider investing in real estate through a REIT or a crowdfunding

platform rather than directly in a property.