As Americans increasingly seek larger spaces now that many are working and educating their children from home, home prices have risen about 16% as supply cannot meet demand. The number of homes for sale is at an all-time high, with only two months of supply at the current rate of sales.
For many people, buying a home just wasn’t on the cards this year. There were too few houses for sale that were too expensive to buy.
Indeed, home prices have fallen, with third-quarter home prices rising more than 18% from a year earlier, according to the Federal Housing Finance Agency. And some analysts expect them to continue rising significantly through 2022.
But those who have been excluded from buying a home should not miss the rapid appreciation of real estate values.
Investing in real estate has long been the domain of “accredited investors”, a category of generally wealthy investors with access to high-risk (and potentially high-return) investments like private equity real estate funds, hard money loans or real estate. real estate syndication in which a group of selected investors pool their money to buy properties. But thanks to investment products like real estate-related mutual funds and ETFs and online crowdfunding platforms, more people can access real estate investments.
“There are a lot of people who feel left out of the home market right now,” said Ben Miller, co-founder and CEO of Fundrise, an online real estate investment platform. “Investing in real estate is a way for them to start understanding real estate.”
While other alternative investments like cryptocurrency can fluctuate wildly from day to day, real estate can be a reliable long-term growth investment and income generator, he added.
Here are some of the ways you can invest in real estate without buying a home or becoming a landlord.
Real estate investment trusts own and invest in properties. By putting money into a REIT, investors have the ability to buy shares in commercial real estate portfolios and earn money from income-generating properties without actually buying or managing the property.
Given the massive increase in house prices, REITs had a banner year in 2021, with investor earnings hitting an all-time high. Cash flow from equity REIT investments rose 40% in the third quarter from a year ago to a record high of $17.4 billion, according to an index from Nareit, an industry group REITs.
And there’s still room to run in the real estate market, said BTIG’s REIT analyst Jim Sullivan.
“We continue to see positive signs for economic recovery towards 2022,” he said.
It used to be that investors needed tens of thousands of dollars to invest in real estate, but the minimums have dropped significantly. Crowdfunding companies, which pool small amounts of money from a large group of investors to invest in properties, have been able to secure initial investment minimums up to hundreds of dollars. There are even options for investing with just tens of dollars.
Fundrise, for example, offers an option that requires a minimum investment of $10. At this level, the investment is entirely in a flagship fund, which contains real estate properties across the country, ranging from single family rentals to logistics centers. The company charges an annual advisory fee of 0.15%, with its funds charging an additional annual asset management fee of 0.85%.
“Once you invest, you can see that you’ve invested in a real asset,” Miller said. “There is real value, not just market value or cryptocurrency speculation. Many people never thought they could own real estate.
Another way to invest via crowdfunding is in real estate debt.
For a minimum investment of $5,000, RealtyMogul offers funds focused on growing or generating income from commercial real estate debt, as well as equity in rental apartments and other residential properties. Fees include a 0.5% annualized service fee and a 1% annualized asset management fee based on the REIT’s total equity value.
Another company, Yieldstreet, offers an alternative investment fund, the Prism Fund, with access to investments previously restricted to institutional investors. The fund is comprised of real estate debt and equity, as well as debt from the art, maritime and legal sectors, among others. The goal is to generate returns that can be paid quarterly in cash or reinvested. The minimum investment is $500 and the fund charges an annual fee of 0.5% and a management fee of 1%.
Crowdfunding sites offer a way to earn decent returns in the real estate market, but probably not as much as buying a property outright, said Blaine Thiederman, certified financial planner and founder of Progress Wealth Management.
“Is it going to provide you with the same returns you could receive if you were to go out and invest in your own real estate? Unlikely,” Thiederman said. “However, I have seen similar returns to the stock market on each of these platforms and sometimes better returns.”
While their simplicity and favorable income streams from crowdfunding sites are attractive, he said, investors should be aware of the fees and the length of time you have to wait to recoup your initial investment.
Since real estate tends to both appreciate in value and generate income, it’s a good way to diversify your portfolio, said Marcus Blanchard, certified financial planner and founder of Focal Point Financial Planning.
“Stocks typically derive most of their return from price appreciation and bonds typically provide most of their return through the interest payments investors receive,” he said. “But real estate sits right in the middle, where returns are more even between price appreciation and steady income.”
But there are some risks, including real estate market volatility and property quality, Blanchard said. Larger REITs generally have access to higher quality investments due to their size. Meanwhile, smaller crowdfunding firms are doing their due diligence but could still invest in lower-quality properties, he said.
Most advisors recommend placing only a small portion of your overall investments in real estate.
“I don’t generally recommend anyone invest more than 10% of their portfolio in real estate, whether through a REIT, investing through an online platform like Fundrise, or in rental properties, because there are so many risks,” Thiederman said. . “Investment strategies need to be profitable because who knows what will happen throughout our lifetime, but that doesn’t mean we should invest in speculative apartment complexes with 50% of our retirement accounts.”