The home market had a record-breaking year last year, thanks in part to decreasing inventories and historically low borrowing rates. Housing costs increased by an average of well over 10% in several regions of the nation.
However, not just the major coastal cities are experiencing rapid expansion. According to a GoBankingRates poll, many of the cities seeing the most growth are located inland. These cities include Buffalo, New York (34.6% growth), Atlanta, Georgia (24.54%), and Cincinnati, Ohio (20.6%).
In light of this, you might be pondering if you should invest in real estate or if it is already too late. You can also be considering whether you ought to make a traditional real estate investment by taking on tenants.
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Here’s the good news, though. Not only is it still a good time to invest in real estate given the expected future growth, but there are also more options than ever for investing in housing without having to deal with tenants or other landlord-related nitty-gritty.
Some of the current top choices are listed below:
#1: Invest in real estate ETFs
An exchange-traded fund (ETF), usually referred to as a basket of stocks or bonds, is a type of fund. ETFs are comparable to index funds and mutual funds in that they offer the same high degree of diversity and generally inexpensive fees.
A real-estate-themed ETF can be a wise choice if you wish to invest in real estate but also diversify your portfolio. An example of a real estate exchange-traded fund (ETF) is Vanguard’s VNQ, which invests in stocks issued by REITs that buy hotels, office buildings, and other types of real estate. Another real estate ETF that functions similarly is IYR, as it offers access to domestic real estate stocks and REITs.
Make sure to conduct your research and weigh your options because there are many different ETFs that provide exposure to real estate.
#2: Invest in mutual funds for real estate.
The purchase of real estate mutual funds is similar to the purchase of real estate ETFs. Taylor Schulte of Define Financial in San Diego, one of my colleagues, claims to be a devoted supporter of the real estate mutual fund DFREX. Why? He feels more confident about future returns because of its cheap costs and track record. The DFREX technique is not only inexpensive but it is also backed by decades of the scholarly study conducted by Nobel Prize-winning economists.
Another real estate mutual fund to think about is TIREX, which has $1.9 billion in assets, extensive real estate holdings diversification, and affordable fees.
#3: Purchase REITs.
Similar to real estate ETFs and mutual funds, consumers buy REITs because they wish to invest in real estate without owning any actual property. Due of the several real estate classes that each REIT invests in, REITs allow you to accomplish this goal while simultaneously diversifying your holdings.
For diversity and “non-correlation” with other forms of securities, financial counsellor Chris Ball of BuildFinancialMuscle.com informed me he personally invests in REITs. Despite the regular mood swings and ups and downs of the real estate market, he claims to prefer the long-term facts.
Without having to be a landlord, it also exposes him to real estate, he adds. Ball adds that many of his clients share that opinion and, as a result, include REITs in their portfolios.
Given this, I usually advise clients to avoid non-traded REITs and to only purchase publicly-traded REITs. The U.S. Securities and Exchange Commission (SEC) recently issued a warning against non-traded REITs, stating that these investments carry excessive risk due to their low liquidity, high fees, and lack of value transparency.
#4: Invest in a business that focuses on real estate.
Numerous businesses manage and own real estate without doing so as a REIT. The distinction is that they may be harder to find than REITs and may pay a lesser dividend.
Hotels, resort operators, timeshare businesses, and commercial real estate developers are a few examples of businesses with a real estate concentration. Be sure to do your homework before investing in individual companies’ shares, but if you want to gain exposure to a particular real estate investment strategy and have the time to look into historical data, company histories, and other factors, this choice may be worthwhile.
#5: Invest in home building
It is clear that a significant portion of the real estate market’s expansion during the past ten years or more has been caused by a shortage of available dwellings. Because of this, many believe that the building of new homes will continue to soar for the foreseeable future and possibly beyond.
In that regard, it is simple to understand why making investments in the construction sector of the industry can also be wise. After all, a whole industry of homebuilders will be required to create new neighbourhoods and renovate existing ones, so now would be a good moment to invest.
To keep an eye on are LGI Homes (LGIH), Lennar (LEN), and D.R.There are numerous others that you can find on your own, including Horton (DHI) and Pulte Homes (PHM).
#6: employ a property manager.
Although purchasing actual property is not a must to invest in real estate, there is at least one method that allows you to have your cake and eat it too. Many investors purchase rentals in order to gain access to tangible rental real estate, but they later employ a property manager to handle all the grunt work.
In spite of the fact that he owns rental property in North Carolina, BaldThoughts.com travel and lifestyle blogger Lee Huffman claims to reside in California. He initially attempted to manage his properties remotely, but ultimately decided to engage with a property manager to preserve both his sanity and his profits.
Even though he pays his manager 8–10% of gross rent, he considers it to be “one of the best moves he’s ever made” in terms of real estate investing. So that I can concentrate on my work, my family, and finding the next profitable rental property investment, says Huffman, “They take care of the rental property essentials – minor repairs, verifying new tenants, collecting rents.”
In that regard, he enjoys the advantages of being a landlord without having to put in as much effort. One of the most crucial jobs of a property manager, according to Huffman, is to serve as a mediator between the tenant and myself. At no time during the day or night do I get sporadic calls, texts, or emails from tenants.
Making sure you only invest in properties with enough cash flow to pay for a property manager while still earning a sizable rate of return is the key to making sure this strategy succeeds.
#7: Purchase mortgage notes.
If you want to invest in real estate but don’t necessarily want to deal with a brick-and-mortar building, you can purchase real estate notes. When you invest in real estate notes through a bank, you often pay prices for debt that are far lower than those charged by a retail investor.
I’ve previously invested in real estate notes through a personal investor I know who buys and renovates homes. My encounters thus far have all been great. However, whether you invest in real estate notes with a bank or a real estate investor who is actively looking for new properties, I would recommend doing your homework to make sure you know what you’re getting into.
#8: Loans for hard money
If you have money to lend but don’t like any of the other suggestions on this list, you can think about making a hard money loan. Because he wants exposure but doesn’t want to be a landlord, my friend Jim Wang of WalletHacks.com says he is currently investing in real estate using this method.
Additionally, he claims that because his time is valuable, the ROI (return on investment) wouldn’t be as high as it would be for other chances.
According to him, hard money loans are essentially direct loans to real estate investors. An investor Wang knows personally requests real estate loans from him, and as a result, Wang earns a 12% return on his investment.
In any case, if you want to invest in real estate but don’t want to deal with a property and the hassles that come with it, hard money loans made directly to real estate investors are another option to think about.
#9: Make online real estate investments
Last but not least, don’t overlook the numerous new businesses that have emerged to assist investors in the real estate market without getting their hands dirty. You can invest in commercial or residential real estate on websites like Fundrise and Realty Mogul and get cash flow distributions in return.
In that your funds are combined with those of other investors who use the platform, investing with either company is comparable to investing in REITs. You might buy residential real estate, commercial real estate, apartment complexes, and more with the money you invest. In the end, you benefit from distributions and dividends as well as the long-term appreciation of the properties you “own.”
Although neither business has been established for very long, thus far they are both doing well. Despite not requiring certified investors to register accounts, Fundraise returned an average of 11.4% on invested money in 2017 after fees and 9.11% in 2018.
