4 Ways To Get in on the Real Estate Boom Without Buying
Historically speaking, real estate has outperformed the S&P 500 in both 20-year and 30-year rolling periods. Real estate also lets you broaden your portfolio beyond just publicly traded stocks and government-issued securities like bonds. Even better, according to Motley Fool, real estate provides a hedge against inflation, which is music to the ears of investors who are currently watching prices rise at their highest rate since the early 1980s.
That settles it, then. Real estate is the way to go — especially in today’s boom market. All you need now is the cash to buy a property — or at least enough for a down payment — a real estate agent, excellent credit, the income and financial history to survive a painfully intrusive underwriting process, and cash on the side for taxes, fees, closing costs, attorneys, title work, inspections and repairs — oh, and interest rates are rising, so expect to pay a whole lot more to borrow money than you would have this time last year.
Actually, you don’t need all that to invest in a real estate boom. Here are a few alternative ways to get your money into the market.
Real Estate ETFs
Exchange-traded funds revolutionized investing by letting average people build broad, diversified portfolios inexpensively and with no expertise or stock-picking skills required. A single share can gain you exposure to a whole sector of the economy or the entire stock market. Their fees are low and they trade in shares just like individual stocks on public exchanges, which means that they’re a liquid investment — you can sell any time on the open market just like you would with shares of Amazon.
You might now know it, but ETFs did the exact same thing for real estate investors that they did for stock investors. A single transaction can buy you into residential real estate, commercial real estate, infrastructure, mortgages, equity and more. Here are a few of the biggest real estate ETFs:
- Vanguard Real Estate ETF (VNQ)
- Schwab US REIT ETF (SCHH)
- Real Estate Select Sector SPDR Fund (XLRE)
Real Estate Investment Trusts
A lot of ETFs consist of a whole bunch of real estate investment trusts packed into one security. That kind of diversity is precisely what makes ETFs so popular, but that level of variation makes it impossible for the entire basket to benefit from the success of just one winning egg.
Investors who know what they’re looking for, on the other hand, can pick a single REIT that has a good chance of outperforming a highly diversified real estate ETF. Also, while ETFs are known for their low costs, they do add another layer of fees on top of the fees charged by the REITs contained within.
By law, REITs are required to distribute at least 90% of their earnings to their investors, so if you’re looking for an income-generating investment, REITs are about as good as it gets. According to Kiplinger, the following are a few of the best individual REITs:
- American Tower (AMT)
- Americold (COLD)
- Digital Realty Trust (DLR)
Crowdfunding lets average investors pool their money to buy a little bit of real estate with a lot of other people. It also lets you diversify your assets and buy into real estate without having anything approaching the capital that you would need to buy even the most modest of properties — and it’s not only costs that you’re sharing. The inherent risk gets spread around to all those other stakeholders, as well.
There are a whole bunch of platforms to choose from, including:
When you’re comparing platforms, pay attention to minimum investment requirements, which can range from $10-$5,000. Some platforms, like PeerStreet, are open to accredited investors only. If you have to ask what that means, you’re probably not rich enough to worry about it.
If liquidity is important to you, also be sure to check the minimum investment term. Many platforms expect you to keep your money invested for five years or close to it. Others, like Concreit, let you pull your money out after one year and only ding your dividend a little bit if you hit the eject button before that.
Invest In the Construction Side of the Real Estate Industry
One reason for the pandemic surge in housing prices was that new home construction had been lagging for years, according to the Wall Street Journal. With recovering supply chains finally starting to free up shipments of lumber and other key building materials, many industry experts expect the next decade to witness a boom in new construction.
You can get in on the action by investing in the companies whose workers will be swinging the hammers and turning the wrenches. According to Forbes, wise investors are placing their bets on big homebuilders like Pulte Homes (PHM), Lennar (LEN), LGI Homes (LGIH) and D.R. Horton (DHI).
More From GOBankingRates