4 Simple Ways to Invest in Real Estate
Investment property, also called investment Real Estate, is one of the primary asset classes you need to be invested in to have a balanced portfolio, and here I’m going to expand on 4 simple ways to get this juicy asset class working hard for you.
When thinking about Real Estate or Investment Property, most people think that the way to benefit or the only way they can invest in investment property is by actually owning the property and then renting it out to benefit from the income (the yield) and possibly some capital growth when / if the value of the property increases.
1ST SIMPLE WAY TO INVEST IN REAL ESTATE : OWNERSHIP
Owning a property, be it residential, industrial, commercial etc, is a key way to invest in real estate and a very valid way to get property assets working for you.
Within this ownership model there are also many, many strategies to grow your wealth and owning a property is also the easiest way to use leverage, wealth expansion borrowing.
Simply put, expansion borrowing or leverage is where you get a mortgage against an investment property and this significantly increases your returns.
I call Real Estate or Investment Property “wealth play-dough”, because there are so many things you can create with it and so many wealth creation strategies you can follow.
💥 You can add value by renovations and conversions.
💥 You can change the use from commercial to residential or any other use change and increase its value.
💥 You can increase the yields by changing the rental period from long leases to shorter lease periods.
💥 You can increase the yield by renting out individual rooms instead of the whole property.
Ownership is not the only way where you can benefit from this asset class.
Just because you don’t want to have the “perceived” hassle of owning and renting our property doesn't preclude you from benefiting from property.
The next simple way to invest in property is, through what are called Real Estate Investment Trusts - REITs for short.
2ND SIMPLE WAY TO INVEST IN REAL ESTATE : REITS
What Is a Real Estate Investment Trust (REIT)?
A REIT is a company owning and typically operating real estate which generates income. This is NOT a property management company - the REIT owns the actual physical buildings, which means when you own a share of a REIT, you own a share of the properties it owns.
Most REITs specialize in a specific real estate sector, focusing their time, energy, and funding on that particular segment of the entire real estate horizon. However, diversified and specialty REITs often hold different types of properties in their portfolios. Properties included in a REIT portfolio may include apartment complexes, data centers, health care facilities, hotels, shopping centres, infrastructure—in the form of fiber cables, cell towers, and energy pipelines—office buildings, retail centers, self-storage, timberland, and warehouses.
One benefit of REITs for investors like us, is that they give us access to own types of real estate we typically couldn’t own on our own and they provide the opportunity to own real estate which generates dividend-based income.
Why are REITs so sexy?
Firstly you can invest in REITs via your digital investment platform in your retirement accounts, your retirement annuity, your superannuation, your SIPP , your RRSP, etc AND inside of your tax protected accounts like your ISA, your tax-free savings account, your Roth etc and you can own a whole bundle of different REITs in the form of an ETF!.
YES, you can invest in Real Estate Investment Trusts in the same way as you invest in index trackers.
So with one investment, you can own the best REITs around the world from the US, UK, Europe, Hong Kong, Australia and emerging markets.
Investing in REITs within your tax protected accounts gives you all those tax benefits too and you get asset diversification and allocation within your portfolio too - super, super sexy.
3RD SIMPLE WAY TO INVEST IN REAL ESTATE : FRACTIONAL INVESTING
The third simple way to invest in investment property, without owning it on your own, is through what is called fractional or crowdsourced investing.
Thanks to the power of technology and the internet, fractional investing is making investment property and especially commercial investment property more and more accessible to invest in individually.
In a similar way as a REIT, these properties are owned by a legal entity, usually a Special purpose Vehicle (SPV) and you buy a share of the SPV and in doing so own a share of the physical property and benefit from rental income and capital growth. AN SPV is a subsidiary created by a parent company to isolate financial risk. Its legal status as a separate company makes its obligations secure even if the parent company goes bankrupt.
Via crowdsourced / fractional investing platforms you can collectively own, for example, a medical building in the USA, a multi-family block of apartments and HMOs in the UK, student accommodation in Australia, all on one platform where collectively crowdfunding investment happens.
From just $1000 and in some cases as low as $50 you can invest in and own a slice of a medical building, or aged care facility and benefit from the income it generates and the capital growth. Then you can build up a portfolio of different properties and get diversification geographically and by property type - without ever having to unblock a toilet.
4TH SIMPLE WAY TO INVEST IN REAL ESTATE : USE IT, DON’T OWN IT
The fourth simple way for you to benefit from investment property is all about usership not ownership.
Rent-2-Rent is where you rent out a house, a unit, an apartment, a garage and then rent it on to others with added values and services.
Think Airbnb, but you rent out someone else's space!
You can do this strategy in a small way by renting out a room in your neighbours house, a yurt you put in their back garden, somebody else's loft space and so on.
Or you can go to the other end of the scale and create a big business with rent-2-rent , building a portfolio of buildings where you rent the buildings and then create multi let spaces where you rent out rooms for student accommodation, professional shared spaces, an entire apartment block or you convert commercial into individual units for mid-level professional individuals who don't want to live individually and want the benefit of collaborative community living without having to create it themselves.
The point is, any real estate investment strategy you can do by owning the property you can do by renting it instead.
Pretty damn sexy as I said.
I hope these 4 simple ways to invest in Real Estate have inspired you to see there is no reason for you to not benefit from this amazing asset class.
Get real estate and investment property working hard for you together with your other assets so you can get on and live with the life you really want.
Remember - your freedom takes just one step. One step at a time is all any of us can take, but we need to make each step count.
