Main ways to invest in real estate indirectly
Indirect investing in real estate involves buying shares in a fund or a publicly or privately held company.
How do you invest in indirect real estate?
Two main ways to invest in real estate indirectly include:
Real estate investment trusts (REITs)
REITs are funds that invest money in real estate projects. They are in the business of owning and managing portfolios of real estate properties. REITs allow investors to invest in real estate without holding physical property. They also enable investors to contribute as much or as little as they like towards a more extensive portfolio of real estate holdings.
REITs are traded funds that are listed on the stock exchange. However, there are also non-traded REITs that experts suggest that investors stay. For example, “the U.S. Securities and Exchange Commission (SEC) has also come out to warn against non-traded REITs. They note that their lack of liquidity, high fees, and lack of value transparency create undue risk.” (Rose, 2021).
REITs are an excellent “fit for everyday equity investors looking to diversify their portfolios and gain exposure to real estate without the hassles of direct ownership” (Davis, 2021).
Electronic Traded Funds (ETFs)
“An exchange-traded fund, also known as an ETF, is a collection of stocks or bonds in a single fund.”
(Rose, 2021)
These allow investors to diversify their portfolios and have low fees broadly. In addition, purchasing a single fund can enable an investor to gain exposure to properties across the globe. Vanguard’s Real Estate Index Fund ETF (VNQ) and the iShares U.S. Real Estate ETF (IYR) are examples of real estate ETFs. They invest in stocks issued by REITs that purchase office buildings, hotels, and other property types.
The main advantage of real estate ETFs is that they offer the same immediate liquidity as other ETFs, mutual funds, or stocks. An investor can buy and sell them as need be with little or no restrictions. They also “allow investors to diversify their equities portfolio to reduce risk at the comfort of their brokerage account” (Davis, 2021).
Apart from fund-related fees for management and operations, investors do not gain the tax benefits afforded to direct real estate investors.
Check the following reference articles to learn more about the main ways to invest in real estate indirectly:
- Davis, B. G. (2021, September 14). 7 Ways to Invest in Real Estate Indirectly Without Holding Title. Money Crashers. (URL)
- Rose, J. (2021, June 30). 9 Ways To Invest In Real Estate Without Buying Property In 2019. Forbes. (URL)
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