How to Sink Your Teeth into Real Estate Without Buying Property
Right now is one of the best times to get into real estate investing. Price growth is slated to slow and then pick up speed again. And we’ve seen only a marginal bump in mortgage rates. All of this spurs confidence in the market even if inventory is down. And with confidence comes increase in prices and increase in value. You’ve got to get on the cart now before it climbs too high.
But if you don’t necessarily want to bind yourself with a mortgage and a house you can’t sell for a while, there are other ways to invest in real estate. Here are a few methods investors use to increase their dividends.
1. Grab Those REITs While They’re Still Hot
A real estate investment trust is a company that owns or finances real estate. Said real estate must produce income for it to be a real estate investment trust. The company must also invest at least 75% of its total assets in real estate, cash or U.S. Treasuries.
There are three kinds of REITs you could invest in. Most are equity REITs. These investments require the REIT to distribute at least 90% of the portfolio’s income to shareholders. These types of REITs invest directly in real estate.
Mortgage REITs loan money to real estate owners in the form of mortgages and various types of real estate loans. The money you earn comes from a net interest margin.
Hybrid REITs are a combination of the previous two.
2. Mutual Funds Are a Classical and Solid Option
While REITs are a type of mutual fund, you can invest in other real estate mutual funds as well. These kinds of mutual funds provide an opportunity to brush up against domestic and international stock positions.
They’ve outperformed the stock market historically, but they’re also slightly higher risk than your typical stocks and bonds. This means it shouldn’t be your sole source of investment. It should be part of a diverse portfolio.
But it’s a fairly lucrative investment if done right.
There are thousands of mutual funds available. A fraction of those are real estate mutual funds. How then do you pick a mutual fund?
Look at the Expense Ratio
Each real estate mutual fund must overcome costs before it can make money for investors. When mutual funds express this amount, they do so using a ratio or percentage.
You want to pick a mutual fund with a low expense ratio. If you don’t, the decision or lack of wisdom could put a massive dent in your potential wealth.
High Turnover Ratios Are a No Go
This is a tax problem. If you jump into a mutual fund that turns over 50% or more of their portfolio each year, stay away.
Why? Because the taxman will tax the property every time it’s sold. The longer a mutual fund holds onto property, the less the taxman will take out.
The Management Team Needs Experience
Who did the mutual fund hire to manage the portfolio? Will they be successful? Will they manage your portfolio well?
And ask if they have skin in the game. If a manager doesn’t have a substantial amount of their own net worth invested alongside fund holders, find another mutual fund.
Have you found other ways to invest in real estate without buying property? Let’s continue the conversation in the comments below.