Invest in Real Estate : How to Invest in Real Estate 2021?
Invest in Real Estate : If you buy physical property (e.g., rental properties, house flipping), you can make money two different ways: Revenue from rent or leases, and appreciation of the real estate’s value.
#1 How to Invest in Real Estate?
If you buy physical property (e.g., rental properties, house flipping), you can make money two different ways: Revenue from rent or leases, and appreciation of the real estate’s value. Unlike other investments, real estate is dramatically affected by its location. Factors such as employment rates, the local economy, crime rates, transportation facilities, school quality, municipal services, and property taxes can drive real estate prices up or down.
- Offers steady income
- Offers capital appreciation
- Diversifies portfolio
- Can be bought with leverage
- Is usually illiquid
- Influenced by highly local factors
- Requires big initial capital outlay
- May require active management and expertise
You can invest in real estate indirectly, as well. One of the most popular ways to do so is through a real estate investment trust (REIT)—a company that holds a portfolio of income-producing real estate. There are several broad types of REITs, including equity, mortgage, and hybrid REITs. REITs are further classified based on how their shares are bought and sold:
- Publicly traded REITs
- Public non-traded REITs
- Private REITs
The most popular way to invest in a REIT is to buy shares that are publicly traded on an exchange. Since the shares trade like any other security traded on an exchange (think stocks), it makes REITs very liquid and transparent.
Like many stocks, you earn income from REITs through dividend payments and appreciation of the shares. In addition to individual REITs, you can also invest in real estate mutual funds and real estate exchange traded funds (ETFs).What We Like
- Steady dividends
- Risk-adjusted returns
What We Don’t Like
- Low growth/low capital appreciation
- Not tax-advantaged
- Subject to market risk
- High fees
#4 Mortgage-Backed Securities | Invest in Real Estate
Another option for investing in real estate is via mortgage-backed securities (MBS). These received a lot of bad press due to the role they played in the mortgage meltdown that triggered a global financial crisis in 2007-08. However, MBS are still in existence and traded.
The most accessible way for the average investor to buy into these products is via ETFs. Like all investments, these products carry a degree of risk. However, they may also offer portfolio diversification. Investors must investigate the holdings to ensure the funds specialize in investment-grade mortgage-backed securities, not the subprime variety that figured in the crisis.