Moneyzine
/Investment Guides /Real Estate Investments

Real Estate Investments

Moneyzine Editor
Author: 
Moneyzine Editor
5 mins
September 21st, 2023
Advertiser Disclosure

There are many ways the average investor can participate in the real estate market. This can range from the purchase of commercial office space to shares in real estate investment trusts (REITs). In this article, we're going to discuss three different ways to invest in real estate.

Real Estate Investment Trusts

A Real Estate Investment Trust, or REIT, owns and operates income-producing real estate including multi-family dwellings, hotels, shopping centers, and commercial office buildings. A board of directors decides on behalf of shareholders which investment properties are to be acquired.

This type of real estate opportunity provides the investor with several advantages:

  • Since the shares of stock are publicly traded on major stock exchanges, they offer the investor liquidity.

  • The trust usually invests in a portfolio of real estate properties, thereby offering diversification.

  • If the trust's securities are registered with the Securities and Exchange Commission (SEC), then public disclosures are available to the investor.

  • The trust is also professionally managed; therefore, investors are not required to be experts in real estate appraisal.

Growth in earnings for real estate investment trusts usually come from several sources including increased revenues and lower operating costs, as well as higher occupancy rates for commercial offices. The trust can also grow earnings by improving existing real estate investments, thereby increasing the marketing opportunity for that location.

Investment Trust Structures

The real estate industry offers many opportunities to investors. There are roughly 190 trusts registered with the SEC with assets of around $986 billion (2016). With such a large opportunity to attract investors, the trust market has classified itself into three broad categories:

Mortgage Trusts

A mortgage trust focuses on lending money to real estate owners or operators through mortgages. Typically, loans are only made to existing properties since they are not of a speculative nature.

Equity Trusts

This type of trust focuses on purchase, development, leasing, and services to tenants. The distinction between equity trust investments and other REITs is this trust invests in properties with the intent to operate, not sell the properties.

Hybrid REITs

Finally, there are hybrid REITs which, as the name indicates, consists of a hybrid approach between equity and mortgage trusts. This topic is discussed in more detail in our article: Real Estate Investment Trusts.

Real Estate Mutual Funds

The second opportunity an investor has to participate in the real estate market is through a mutual fund. These funds are very similar to the "traditional" mutual fund concept except that they limit their investment targets to real estate companies.

This means a real estate mutual fund might invest in the shares of a management company or a builder of residential and commercial properties. Investors can even find mutual funds that invest in REITs. Once again, there is more information on this topic in our article: Real Estate Mutual Funds.

Buying Real Estate

The third, and final, option an investor has is to buy real estate properties. With interest in the stock market fading, more investors are looking to real estate for higher returns on their investments. Buying and owning real estate can be rewarding, but it can also be a full time job. The following are just a few of the important factors to understand before making an investment.

Real Estate versus Stocks

Investors new to the real estate market are frequently individuals turning away from stocks. Unfortunately, real estate is more time consuming than owning stocks, and the strategies can be very different.

For example, the latest trend in the real estate market is flipping houses. But limiting investments to short term appreciation opportunities, or fixer-upper scenarios, can be expensive. When buying and holding real estate in the long term (10 plus years), the odds of making money increase significantly. Unfortunately, there can be a substantial time commitment when investing in properties.

Conducting Research

Owning real estate means taking physical possession of something that requires maintenance and a renter or lease. As more information is obtained on a property, the chance of success increases. Even in slow or declining markets, knowledgeable investors can realize high returns. The investor has to know what to look for in a property, and that research takes time.

Cash Flow

Many companies that grew quickly have fallen because they simply ran out of cash, and that's what pays the bills. A lack of cash reserves can quickly put an investor in an uncomfortable situation when it comes to real estate.

Without money in reserve, it's not possible to maintain and repair properties. When a property is in a state of disrepair, it will be difficult to attract and retain tenants. The lack of rental income puts a greater strain on cash flow. This scenario can quickly spin out of control and lead to large losses.

Learn to Negotiate

Finally, striking a good deal in the real estate market is more than just sending a stock broker a buy order. Negotiating a good deal is perhaps one of the most important aspects of buying real estate, and when done right, can literally save the investor thousands of dollars. If the investor's background doesn't allow them to gain a lot of experience in this area, then a course on negotiating skills is worth considering.


About the Author - Real Estate Investments


Explore Investing Further

Trading has never been easier, thanks to the rise of online platforms that enable you to buy and sell various assets at the click of a button. But with so many options available, it can be challenging to decide which platform is right for you.
Looking for a way to avoid swap fees while trading forex?
Below listed are the small reviews of the top 10 ETF brokers available across the United States.
Our top beginner's pick for copy trading is eToro. Read on for more details, plus seven good alternatives.
Swing trading stocks can be a great way for investors to take advantage of short-term stock market movements and gain significant returns. If you're interested in swing trading, the key to success lies in selecting the right stocks to buy and sell quickly for a profit.
The table below lists the best stock picks under $2, listed on public exchanges.
The table below lists the best stock picks under $1, listed both on public and OTC exchanges.
This section will highlight the best EV-trading penny stocks available in the United States.
The demand for sustainable energy has grown rapidly in recent years. This has resulted in increased scrutiny of the automotive market. As a result, the electric vehicle (EV) industry has made significant advancements.
Intelligent Bio Solutions Inc. is a life sciences company, founded in 2016 with headquarters in New York and is engaged in performing diagnostic tests, real-time monitoring, and non-invasive surgery for its patients. The firm has developed a CoV-2 Biosensor, which can be used in RNA virus detection.
Hour Loop was founded in 2013 with headquarters in Redmond, Washington. It’s an online retailer involved in e-commerce in the United States that hit the public markets on Jan 7th of 2022. The company sells home/garden decor, electronic products, kitchenware, and apparel through walmart.com, amazon.com, and hourloop.com.

Related Content

Are You a Financial Disaster? The Real State of Your Finances
Have you ever heard the saying, “If you don’t have a goal, then you’ll wind up hitting it with amazing accuracy.”? In other words, if you have no idea where you want to be in your future life, then it really doesn’t matter what you do because wherever you end up will match your goal…which apparently was never important enough for you to think about in the first place.
March 13th, 2024
DRIP Brokers: Best Brokers for Dividend Investing for March 2024
Reinvesting dividends could mean compound growth for your portfolio. But reinvesting them manually can be a hassle. This is why you could benefit from a dividend reinvestment plan (DRIP).
March 12th, 2024
11 Steps to Transform Your Finances (For Good This Time!!)
The money comes in…the money goes out…and at the end of each month you have very little to show for all your efforts. Then, after buckling down for a bit and saving here and there, it feels like you’ve gained a little traction…until another unexpected bill comes along and takes your bank account down to nothing (or probably more likely, racks your credit card back up to the max instead of down to zero like you were fighting for). It’s time to change this. Now is the time to transform your finances.
March 11th, 2024
How To Invest in Real Estate Without Becoming a Landlord
We all know that in order to build wealth and prepare for retirement, investing is the key. However, it can be hard to figure out what to invest in and how to put your money to good use. One of the most talked about ways to build wealth is owning property and being a landlord to bring in passive income. But what if you don’t want to do that? You can still invest in real estate!
March 6th, 2024
Investing In Nature: The Closest You'll Get To Your Money Growing On Trees
ESG (Environmental, Social, and Governance) has become a polluted word for many traders and investors - but that doesn't mean it's going completely away. Nor does that mean you can't profit from nature or sustainable practices. But there are some opportunities in the regenerative ag, conservation, and green real estate spaces.
February 29th, 2024

Contributors

Moneyzine 2024. All Rights Reserved.