Real estate investment provides the anchor in an well-diversified portfolio. When investors make the mistake of focusing only on stocks, they set themselves up for a world of hurt. Stock prices are volatile. When values sink, they sink fast and with little warning. Real estate moves at a much more stately pace. Values do fluctuate, but they don’t evaporate before your eyes.
Many investors keep their focus on stocks because they can buy them without investing large sums of money, the commissions are small, and positions can be liquidated in seconds. Investing in real estate, like apartment- and office buildings, seems out of reach. Just a down payment on a small building is often more than the average investor’s net worth, and qualifying for a multimillion dollar loan is a fantasy. Exiting an investment can take months or years.
To make real estate investing possible for small investors, Dwight D. Eisenhower signed the REIT Title Act into law. This act created real estate investment trusts (REITs), which invest in a portfolio of real estate ventures and sell shares to investors, much like a stock mutual fund, as explained in U.S. News and World Reports, REITs are traded on open stock exchanges, such as the NYSE, so they are liquid and can be purchased for a small investment.
REITs have been popular for decades because of high dividends and solid, predictable growth.
REITs also require an amount of due diligence that is manageable for most investors. The portfolio is managed by professionals who do the work of researching and selecting the real estate investments. If you have faith in management’s ability, you can sleep well at night.
Investors with more expertise in real estate who are willing to put in more work are flocking to a new investment vehicle called a real estate crowdfunding. Unlike REITs, where management selects the portfolio components, crowdfunding requires the investor to select the underlying investments. If you know how to pick profitable real estate, crowdfunding can score you big returns.
The big if in crowdfunding is whether you have an edge over the management of a solid REIT. If you don’t, you are unlikely to outperform those professionals, so you should put your money into a well-regarded REIT. However, if you have acumen for analyzing properties and special knowledge of real estate, crowdfunding might be for you. Understanding of local markets and properties can be a huge advantage. You may know a certain sphere of the real estate world very well. Why not use this to your advantage by investing in crowdfunding?