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Real estate investment trusts

Investing in a real estate investment trust (REIT) is a way to profit from the real estate market without having to buy a physical property or deal with any landlord duties.

Like giant landlords, REITs are publicly traded companies that own income-producing real estate like apartment buildings, shopping centers and office towers. They collect rent from tenants and pass that rent to shareholders in the form of regular dividend payments.

Generally, they’re described as high-return investments that provide solid dividends and the potential for moderate, long-term capital appreciation.

Also, as REITs are publicly traded, you can buy or sell shares any time and your investment can be as little or as large as you want — unlike buying a house, which usually requires a hefty down payment followed by a mortgage.

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Real estate ETFs

Another easy way to invest in real estate without having to pick and choose which stocks to buy and sell, is through exchange-traded funds (ETFs). You can think of an ETF as a diversified portfolio of stocks.

As ETFs trade on major exchanges, they’re convenient to buy and sell. Some ETFs passively track an index, while others are actively managed. One thing to note is that they all charge a fee — referred to as the management expense ratio (MER) — in exchange for managing the fund.

The iShares U.S. Real Estate ETF (IYR), for example, gives investors targeted access to domestic real estate stocks and REITs. The fund is managed by BlackRock and currently holds 78 stocks with total net assets of $2.85 billion. Since the fund’s inception in June 2000, IYR’s net asset value (NAV) has grown 8.47%. Its MER is 0.39%.

You can also check out the iShares Cohen & Steers REIT ETF (ICF), which tracks an index of U.S. REITs, with its top sectors being telecom towers, retail, data centers and multi-family residential. With 30 holdings and total net assets of $2.24 billion, this is another giant ETF that has produced total returns of 8.66% since its inception in January 2001.

Two other giants to consider are the Vanguard Real Estate ETF (VNQ) and the Real Estate Select Sector SPDR Fund (XLRE). Like all things investing, there are many options and it’s important to consider what best meets your needs and your financial goals.

Crowdfunding platforms

Crowdfunding refers to the practice of funding a project by raising small amounts of money from a large number of people. This can include real estate.

Through a crowdfunding platform, you can buy a percentage of physical real estate — from rental properties to commercial properties.

Some options are targeted at accredited investors, sometimes with higher minimum investments that can reach tens of thousands of dollars.

These platforms can also make real estate investing more accessible to the general public by simplifying the process and lowering the barrier to entry. Many platforms let you invest small sums, even as low as $100.

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.

More: Best real estate crowdfunding sites for 2023

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About the Author

Bethan Moorcraft

Bethan Moorcraft

Reporter

Bethan Moorcraft is a reporter for Moneywise with experience in news editing and business reporting across international markets.

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