Real estate has long been one of the most common types of investment in America. Whether you are trying to increase the value of your primary residence or use a rental property for supplemental income, real estate offers an opportunity to grow your wealth and retire earlier.
But what if you don’t have the funds available to purchase an investment property? Today more people are able to enter the real estate investment game thanks to new investment strategies that use money from a pool of investors. If you want to build your wealth without investing all of your earnings at once, here are three opportunities worth considering:
Crowdfunded Real Estate Projects
If you’ve ever visited Kickstarter then you are probably familiar with the crowdfunding concept. Crowdfunding consists of a single project or investment that is funding by a number of people. It’s a strategy that has existed for centuries but is a relatively new way of investing in real estate.
How does it work? Real estate crowdfunding platforms like DiversyFund.com use a very simple process that makes it easy for investors to review a wide variety of projects and decide which investment meets their criteria. The platform will carefully vet each project so that only legitimate opportunities are displayed. It will also provide essential details like expected return and minimum buy-in so that investors can gauge the risk versus reward.
Buy-ins for crowdfunded real estate projects can start as low as $1,000-5,000. You’ll also be able to invest in areas outside of your own real estate market to help diversify your portfolio and lower the risk. Do keep in mind some real estate crowdfunding platforms are open only to accredited investors. However, the recent JOBS Act is helping to open up this type of investing to more people of all income levels.
Real Estate Investment Trusts (REITs)
A real estate investment trust is another option for people that want to invest in real estate, but don’t have the upfront capital to buy properties on their own. This is an investment strategy for people that don’t mind letting someone else manage all of the logistics.
REITs are very similar to mutual funds, and your investment is like purchasing stock. A company or investment group will purchase an income-producing property. They’ll then sell shares of the property to real estate investors. The company pays dividends to the investors on the income that’s generated, and if the property is sold the investor will get a portion of the capital appreciation.
Like crowdfunding, diversity is one of the benefits of REITs. There are five main types of REITs that the majority of investors purchase, but endless opportunities exist within each one. However, unlike crowdfunding you’ll have no real say in how the investment properties are managed since it isn’t direct ownership.
Real Estate Exchange Traded Funds
Another shareholder investment strategy is real estate exchange traded funds (ETFs). These funds bundle together stocks from various companies that are real estate related. The diversification helps to mitigate the volatility of stock investment, however it still involves a little more risk than other forms of real estate investing and the annual return may not be as high.
This is a viable option if you have little experience or understanding of which real estate companies to invest in. The fund will do the work of putting together the portfolio. While this means less work on your part, it also means that you’re handing the decision-making reigns to someone else.
Just because you don’t have hundreds of thousands in the bank doesn’t mean you can’t become a real estate investor. Opportunities exist for people of all income levels. You can use these investments to produce extra income in retirement or as a way to build your assets so that you can eventually make real estate investments that are funded on your own.