It’s a sad fact of the modern world that the majority of families don’t know the first thing about how to use their capital to make money. The majority of people stuff their savings into a low-interest account with their bank, leaving it there and hoping that it will accrue interest. But in today’s low-interest-rate environment, that doesn’t happen. You lose more value on your money through inflation than you make in pitiful interest on savings accounts.
One alternative is to buy a property. But the majority of people falsely believe that the only way to make money on property is to buy one outright and then rent it out to another person. That involves taking out a second mortgage and paying for it with rental income. It all seems like too much hassle, not to mention risk.
The good news is that there are multiple ways to invest in property which don’t involve buying it.
Buy A Real Estate ETF
ETFs are a relatively recent innovation in financial markets. Instead of buying an asset individually, you buy a bundle of assets that a company creates for you with a specific goal. There are ETFs, for instance, that allow you to own every share in the S&P 500, without having to go around, buying all 500 manually. ETFs have also made their way into the property market too. You can purchase real estate ETFs, like Vanguard’s VNQ, which buys stocks in real-estate investment trusts. It’s a way of streamlining the entire process, making it less cumbersome while at the same time, diversifying your risk.
Invest In REITs
What is an investment property? Essentially, it’s a property that you hope will make you money. Most people believe that their home is an “investment,” but technically, it’s not. Investments are productive capital that generates a return, irrespective of price appreciation. An investment property is one that you own and then rent out to somebody else, allowing you to cover mortgage costs and eventually make a return on the overall asset.
Real estate investment trusts, or REITs, are a way to own investment-grade properties without actually having to buy one. The REIT holds multiple properties in its portfolio, and you buy a slice of the total rental in proportion to your initial investment. So, for instance, if you invest $20,000, you get a return equivalent to owning a $20,000 stake in a property. As you might expect, the more you spend, the higher the absolute value of the return.
Buy A Real Estate Mutual Fund
Mutual funds sometimes focus on real estate instead of stocks and shares. When you put your money into a mutual fund, you’re effectively handing it over to investment managers who will use that money to make decisions about which real estate assets to buy on your behalf. The goal is to generate a return above the market rate. But be warned: mutual funds charge high fees and, if they don’t make money, you could see your investment values fall substantially.