You can throw your hat into the real estate portfolio ring without having to manage or buy a property.
Let’s take a look at 3 ways you can get into the property game and reap returns without needing a big lump sum, dealing with tenants or the other hassles of being a landlord.
Invest in Real Estate Investment Trusts (REITs)
The idea of REITs is simple; they collect money from hundreds or thousands of investors and then use this pool of money to invest in property assets. You’ll also see them called listed property trusts.
REITs make money from the properties they purchase by renting, leasing or selling them. REITs cover a range of different property types; from commercial office buildings, hospitals, shopping centres and hotels through to residential property and even storage units – plus more.
REITs allow everyday investors to be able to own a stake in proeprty assets that would otherwise be out of their reach. Not many of us can afford to buy entire shopping malls or high rise CBD office buildings outright, but REITs give you access to invest in this kind of asset.
There are also mortgage REITs (mREITS) which finance income-producing real estate assets by purchasing mortgages with a goal to earn interest on these investments.
90 percent of the taxable income generated by REITs must be distributed to the shareholders on a regular basis and investors are paid dividends based on the amount they have invested.
In a way you become a mini-landlord without the hassle of dealing with managing the property and tenants.
Although the income is lower, it’s a less risky way to profit from proeprty than owning the building outright.
While REITs are diversified in the sense that they hold many different properties, some REITs may not invest in more than one or two different types of properties. So, from this perspective diversification can be limited with some REIT options.
Invest in Property ETFs (Exchange Traded Funds)
While REITs invest in real estate, real estate ETFs invest in REITs.
You can buy and sell real estate ETFs just like you would buy stock on the stock market, and just like stocks, there are dozens of options out there for different types of real estate ETFs.
This means you can invest in a range of different property sectors and locations – without the complexity of having to put together your own portfolio.
Like other types of ETFs, real estate ETFs invest passively by tracking indexes.
This means that instead of needing a fund manager to actively choose which proeperty investments to buy or sell, real estate ETFs simply buy the investments included in an index at the amount it dictates.
The ultimate goal of an ETF is to match the performance of the index.
Because you aren’t paying someone to actively manage the funds, when it comes to costs, ETFs will have some of the lowest fees that you can find for investing in property.
However, there are some real estate ETFs that focus exclusively on smaller segments of the REIT world and these can have higher fees.
The biggest benefit of real estate ETFs is the exposure they give to all kinds of REITs, making them a more diversified choice than investing with one REIT.
For a list of the best property ETFs in 2019 check out this list.
Invest in Mutual funds
Investing in a real estate mutual fund is similar to buying real estate ETFs but the difference is real estate mutual funds are actively managed.
They have a fund manager picking different types of investments and their goal, unlike ETFs which aim to track the benchmark, is to beat the benchmark with better returns.
Because you’ll have a fund manager responsible for managing the funds, it means your fees will be higher, so this is something to watch.
Unlike real estate itself, real estate mutual funds are relatively liquid and can be sold quickly if need be. They can provide a potential hedge against inflation too as the value of property tends to rise during times of inflation.
Like real estate ETFs, they also allow you to get exposure to diversified real estate assets.
It’s important to realise that these types of real estate investments are extremely sensitive to interest rate fluctuation. When real estate prices fall and interest rates rise, these REITs, real estate ETFs, and real estate mutual funds, will see their returns decline. However, like I always say, your aim is to be a long term investor, and over time, your investments will go through cycles. Ultimately, as a long term investor you will benefit from the capital growth and be enjoying great compounded returns.
If you are looking for a simple, hassle free way to access property markets, then these three options are a great way to get started.