Real estate investment is traditionally considered one of the most reliable form of investments because the supply of housing will theoretically continue to trail human population growth
Real estate investment is traditionally considered one of the most reliable form of investments because the supply of housing will theoretically continue to trail human population growth. The housing market has seen huge growth in the big coastal cities as well as inland towns with double digit-growth in places as different as Buffalo, New York (34.6%) and Cincinnati, Ohio (20.6%). Many people have predicted that the boom in the real estate market will continue in the short to medium terms.
However, to invest in real estate in the traditional sense of buying and selling a land or property; you’ll need a decent amount of money or an excellent credit rating to cover the down payment, maintenance. You’ll also need cash reserves to keep operations running when the property is vacant. Many people who want to invest in real estate don’t have the required financing; beyond financing, many people can’t afford to make the required time commitments to keep a real estate business afloat. This piece provides three insights into how to get a piece of the real estate market without necessarily buying a property.
1. Invest in a home construction company
Investing in a home construction company is a smart way to invest in real estate without necessarily buying or managing a property. Real estate market stats suggest that there’s a limited housing inventory; hence, the home construction industry will continue to boom as the real estate market continues to grow. Investing in a home construction company requires less funds and due diligence than investing outrightly in a real estate development project. You can choose to buy the shares of publicly traded homebuilders such as LGI Homes (NASDAQ:LGIH) or DR Horton (NYSE:DHI); on the other hand, you may want to invest in a small real estate construction business as a passive partner.
2. Join a real estate investment group
Another exciting way to invest in real estate without the headache of running a real estate company is to participate in real estate crowdfunding platforms. Real estate crowdfunding platforms typically pool the funds of different investors with similar risk appetites to participate in the peer-to-peer real estate lending market place. The people who borrow the funds are usually real estate developers who have experience and expertise in managing real estate businesses. Crowdfunding real estate investments ins win-win for investors and potential property owners. The investors get a slice of the real estate market without a significant upfront investment and property owners get access to funding without the frustrating bureaucracy of banks.
3. Buy into a Real Estate Investment Trust
Real Estate Investment Trust (REITs) are ideal for investors understand the stock market and those who want their portfolios to get exposure to the real estate market without being involved at any point in a tangible real estate transaction. At their core, REITS are dividend -paying stocks of companies that are focused on investing in commercial real estate. You’ll need to analyze a REIT as you would analyze a typical stock investment by reviewing its trading price, cash flows, net asset value, liabilities, and operational margins among other things.
Read more: Is a REIT a good investment?
