Despite the ups and downs of the economy in America in recent times, the real estate sector has given investors a steady return on their investment with housing prices rising progressively over the years. According to https://seekingalpha.com, an ROI of 15% is achievable over the long term if the investors are prepared to deal with the demands of the sector, which include accessing large amounts of capital and the risks of personal debt exposure, not to mention the need to comply with various regulations that govern the sector. What is encouraging though, the huge growth is not restricted to the traditional coastal cities but is also present significantly inland. If you are one of the many who are wondering whether it is the right time to invest in real estate or if it is already too late, you should also consider the many other opportunities of investing in real estate that does not involve the direct purchase of properties, which have their own set of problems. Some of the top ways of reaping the benefits of real estate investing in a non-traditional way:
Real Estate ETFs
An ETF or an exchange-traded fund is essentially a collection of real estate stocks or bonds that are held by a fund, which is then traded on the exchange in a manner that is very similar to mutual funds, and index funds. Investors get the benefit of putting their money in a diversified basket that lessens the overall risk and cost of fund management. Investing in an ETF, that focuses on the real estate sector can be a smart move for investors who are conservative and prefer to diversify their capital to reduce the risks. A typical ETF may actually invest in the stocks issued by real estate investment trusts (REITs) that invest in a portfolio of residential and commercial properties across multiple geographies. Since you will encounter a number of real estate-focused ETFs, the real job is to sift through their investment portfolios and track record and make a wise investment decision.
Real Estate Mutual Funds
Just like investing in REITs, investors can choose to invest in mutual funds that invest in real estate opportunities. Investors can reap the same benefits of low entry cost, no administrative hassle, and take the advantage of some of the best brains in the industry to invest in a low risk diversified portfolio that can yield a stream of steady return over the next few years. Many of the funds are managed by teams with considerable experience of reading between the lines of economic cycles that affect the growth of the real estate industry giving you a matchless chance of keeping your money performing at its peak level.
Real Estate Investment Trusts
The very same reasons that make investing in ETF and real estate mutual funds a good method of investing in real estate without actually buying properties also hold good for investing in real estate investment trusts. These trusts are investment vehicles that individual investors can use to buy shares in portfolios of commercial real estate that generate income in multiple ways. Portfolios may contain assets that are as diverse as residential complexes, commercial buildings, pipelines, hotels, cell phone towers, shopping centers, warehouses, timberland, and much more. While the diversified REITs hold multiple types of properties in their portfolios, other specialty trusts invest in specific types of properties. According to investment experts, REITs represent an opportunity for excellent diversification of portfolios and risk mitigation because of their typical non-correlation with the other equity types. However, investors are warned to stay away from EITs that are not traded because they are highly illiquid, do not have any transparency of operations, and typically charge steep fees.
If you have substantial amounts of cash waiting for an investment opportunity and you also know the local real estate market well, you can directly finance property developers who want quick and easy loans and are ready to pay a premium rate of interest. This avenue of real estate investment does not require you to buy any property or a financial instrument but can give you handsome returns. High net worth individuals can act on their own or in a group to give loans to fix-and-flip operators that they know. The loans are for relatively short periods, sometimes even overnight, allowing very high returns to be generated while the property being financed acts as collateral affording very high security. If you are sure of the investment potential, you can take a personal loan from liberty lending. for further leveraging your corpus.
Companies Focused On Real Estate
There are quite a few companies that make it their business to buy and manage properties without operating as a true REIT. These companies engage in various activities that range from time-sharing, operating resorts, and hotels, managing commercial properties or even acting as real estate developers. The only way you can invest in these companies is to buy their stocks from an exchange that they are traded in. It is very important that you conduct your own due diligence before buying their shares; however, if you have the time and the interest in analyzing financial performance data, you could spot some really good investment opportunities that will result in a steady stream of dividends as well as long-term capital appreciation outperforming the average performance of the stock market.
Real Estate Notes
When you want to invest in real estate but do not want the bother of dealing with physical assets, you can consider investing in real estate notes. These notes are generally home mortgages but can also be home equity lines of credit and bridge loans. Investors can fund these lending instruments either on their own or by becoming a member of an investment group specializing in lending for mortgage financing. The advantages of real estate notes are many; they have a very high liquidity since there is a very active market for these instruments, double-digit rates of return are quite common, the entry barrier is quite low thanks to the emergence of P2P lending platforms that allow members to join with investments that can be as low as $25. Not only do investors have the collateral security of their investments but the IRS also offers a favorable treatment of the tax, treating the income as being passive and not earned.
Investing in the real estate sector can be very profitable. You can earn handsome returns on your investment even if you do not want to actually buy and sell properties or manage them for generating rental income. Smart investors can enjoy the benefits of a diversified portfolio of real estate assets and the management expertise of trained professionals by investing in financial instruments or investment opportunities that do not require them to get their hands dirty.