3 Ways to Invest in Real Estate
How to Invest in Real Estate
There are so many different ways to invest in real estate, but these are the 3 most common ways - homeownership, REITs and ETFs, and directly purchasing real estate investment property.
Home Ownership as an Investment
The true costs of owning a home are often forgotten until after closing on the property. Owners should remember they need to spend anywhere from 1-4% of the value of the property on maintenance and upkeep.
Has much lower returns than the stock market. Returns are near 0% once inflation and maintenance are taken into consideration.
REITs and ETFs
Extchange traded real estate funds and REITs are based in real estate but are also listed on the stock exchange. The benefits and problems are related to the regulations required to get listed on the stock market. These regulations are extremely expensive and add to the costs.
Though you technically may own a portion of the real estate, you have absolutely no say in what real estate you buy or how it’s managed. You can only vote with your feet and sell your shares and move on.
Managers can take 10-20% of the money and give you a “normalized profit.” If you get 8% you are happy, but you paid a ton of managers and other people. 8-12% seems good, but not when you know how much they took off the top.
Directly Invest in Real Estate
People are afraid of this because they don’t want to “fix leaky toilets” or any number of other excuses. Who wants to fix toilets? I don't even think plumbers like to fix them.
The reality is direct investments can be as active or passive as you want them to be. You can actively manage your property, or go a more passive route. So, you can fix toilets if you are hands-on, or you can just hire other people to do it.
The greatest benefit to directly investing in real estate is that you can leverage your returns. Returns can be leveraged into huge returns, often > 20%.
Lastly, you can decide which properties to invest in and which ones to skip. You can also decide how to deal with problems, or let someone else figure it out. You have a high degree of control.