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Invest in REITs

REITs stands for real estate investment trusts, which are companies that own income-producing real estate like apartment buildings, shopping centers and office towers.

You can think of a REIT as a giant landlord: It owns a large number of properties, collects rent from tenants, and passes that rent to shareholders in the form of regular dividend payments.

To qualify as a REIT, a company must pay out at least 90% of its taxable income to shareholders as dividends each year. In exchange, REITs pay little to no income tax at the corporate level.

Of course, REITs can still experience rough times. During the pandemic-induced recession in early 2020, several REITs cut back on their dividends. Their share prices also tumbled in the market sell-off.

Some REITs, on the other hand, manage to dish out reliable dividends through thick and thin. Realty Income, for instance, pays monthly dividends and has delivered 115 dividend increases since it went public in 1994.

It’s easy to invest in REITs because they’re publicly traded.

Unlike buying a house — where transactions can take weeks and even months to close — you can buy or sell shares in a REIT anytime you want throughout the trading day. That makes REITs one of the most liquid real estate investment options available.

Also, your investment can be as little or as large as you want — be it $100 or $100,000. While buying a house usually requires a hefty down payment and a mortgage, you can buy shares in a REIT with as much money as you are willing to spend.

While REITs aren’t known as the hottest stocks in the stock market, some have delivered some eye-catching returns: In 2021, the FTSE NAREIT All Equity REITs Index — which tracks publicly-traded REITs in the U.S. — rose 41.3%, topping the S&P 500’s already impressive 28.7% gain.

The sector is also seeing increased consolidation. Last year, mergers and acquisitions among REITs totaled an all-time high of $140 billion.

In February, Blackstone announced that it would acquire rental apartment owner Preferred Apartment Communities (APTS) in an all-cash transaction valued at $5.8 billion. If big asset managers are making significant moves into the space, retail investors might want to pay attention.

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Invest in an online crowdfunding platform

Crowdfunding has become a buzzword in recent years. It refers to the practice of funding a project by raising small amounts of money from a large number of people.

These days, many crowdfunding investing platforms allow you to own a percentage of physical real estate — from rental properties to commercial buildings to parcels of land.

Some options are targeted at accredited investors, sometimes with higher minimum investments that can reach into the tens of thousands of dollars. To be an accredited investor, you need to have a net worth of over $1 million or an earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the past two years.

If you are not an accredited investor, many platforms let you invest small sums if you like — even $100.

Such platforms make real estate investing more accessible to the general public by simplifying the process and lowering the barrier to entry.

Some crowdfunding platforms also pool money from investors to fund development projects. These deals typically require longer commitments from investors and offer a different set of risk-reward profiles compared to buying shares in established income-producing rental properties. For instance, the development could get delayed and you won’t earn rental income in your expected time frame.

Sponsors of crowdfunded real estate deals usually charge fees to investors — typically in the range of 0.5% to 2.5% of whatever you’ve invested.

Invest in ETFs

Picking the right REIT or crowdfunded deal requires plenty of due diligence on your part. If you are looking for an easier, more diversified way to invest in real estate, consider exchange-traded funds.

You can think of an ETF as a portfolio of stocks. And as the name suggests, ETFs trade on major exchanges, making them convenient to buy and sell.

Investors use ETFs to gain access to a diversified portfolio. You don’t need to worry about which stocks to buy and sell. Some ETFs passively track an index, while others are actively managed. They all charge a fee — referred to as the management expense ratio — in exchange for managing the fund.

The Vanguard Real Estate ETF (VNQ), for example, provides investors with broad exposure to U.S. REITs. The fund holds 166 stocks and has total net assets of $81.8 billion. Over the past 10 years, VNQ has delivered an average annual return of 9.6%. Its management expense ratio is 0.12%.

You can also check out the Real Estate Select Sector SPDR Fund (XLRE), which aims to replicate the real estate sector of the S&P 500 Index. It currently has 29 holdings and has an expense ratio of 0.10%. Since the fund’s inception in October 2015, it has delivered an average annual return of 10.6%.

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The bottom line

Investing in real estate isn’t risk-free — far from it.

While owning real estate can help you keep up with inflation and earn a passive income, property prices don’t always go up. Tenants could also have trouble paying rent, so the income stream that landlords rely on can be especially lumpy.

That said, real estate has historically been one of the most reliable ways to build wealth — particularly during times of hot inflation. And today, investment vehicles like REITs, crowdfunding companies and ETFs make owning real estate even easier.

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Fine art as an investment

Stocks can be volatile, cryptos make big swings to either side, and even gold is not immune to the market’s ups and downs.

That’s why if you are looking for the ultimate hedge, it could be worthwhile to check out a real, but overlooked asset: fine art.

Contemporary artwork has outperformed the S&P 500 by a commanding 174% over the past 25 years, according to the Citi Global Art Market chart.

And it’s becoming a popular way to diversify because it’s a real physical asset with little correlation to the stock market.

On a scale of -1 to +1, with 0 representing no link at all, Citi found the correlation between contemporary art and the S&P 500 was just 0.12 during the past 25 years.

Earlier this year, Bank of America investment chief Michael Harnett singled out artwork as a sharp way to outperform over the next decade — due largely to the asset’s track record as an inflation hedge.

Investing in art by the likes of Banksy and Andy Warhol used to be an option only for the ultrarich. But with a new investing platform, you can invest in iconic artworks just like Jeff Bezos and Bill Gates do.

About the Author

Jing Pan

Jing Pan

Investment Reporter

Jing is an investment reporter for MoneyWise. Prior to joining the team, he was a research analyst and editor at one of the leading financial publishing companies in North America. An avid advocate of investing for passive income, he wrote a monthly dividend stock newsletter for the better half of the past decade. Jing holds a Master’s Degree in Economics and an Honours Bachelor of Science Degree, both from the University of Toronto.

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