If you’re sadly looking at your portfolio and wondering what happened, you aren’t alone. Inflation has hurt a lot of portfolios because businesses are struggling to stay afloat. The higher the costs get, the harder it is for companies to be profitable, which hurts the stock prices.
If you’re only invested in the stock market, you could be doing yourself a disservice. During high inflationary times like now, it’s best to diversify your portfolio and the best way to do it is by investing in real estate.
You might be thinking that there’s no way you can invest in real estate right now. Here’s the truth – you don’t need a lot of capital to invest in real estate. Whether you invest in physical real estate or shares of real estate companies, there are ways to invest with as little as $100 so everyone can be a real estate investor.
Why Invest in Real Estate
Investing in real estate during times of high inflation can be smart. Here’s hwy.
Real estate appreciates during inflation. As cost of labor and material increase, so does the price of homes. As home prices increase, the market values of surrounding homes increase too. This bodes well for the real estate investor since they earn the equity that builds up in the home.
Real estate is a good investment during most times because it will eventually appreciate. Even if you invested and the market took a downturn, it usually bounces back. Just look at the real estate crash of 2007 – 2008. Most people lost everything including their homes. Values fell to drastic levels and the economy suffered. But it didn’t take long for values to bounce back and for real estate to be a solid investment again.
Those that rode out the storm saw a return on their investment again, while those that bailed struggled to make their money back.
The Different Ways to Invest in Real Estate
When you think of real estate investments, you likely think of buying a house and renting it out. That’s certainly the most common way to invest in real estate, but it’s not the only way. There are many easy to invest in real estate today that makes it easy for even beginners to jump on board.
Here are the best ways to invest in real estate today.
Buy, Rent and Hold
If you want to be a landlord, buying and renting out real estate can be a great way to improve your cash flow and earn equity buildup.
As the landlord, you are responsible for the property taxes, mortgage, insurance and maintaining the property. You will screen and choose tenants, collect rent, pay the bills, and be on call if anything goes wrong with the property.
Landlords earn monthly cash flow from the rent, plus they earn the equity the property earns throughout the time you own it. When you sell the property, you earn the difference between the purchase price and the sales price – it’s yours to keep minus any expenses and tax liabilities, of course.
While it can be a lot of work, it can also be a very rewarding way to invest in real estate. You’ll make money and be helping people that couldn’t afford to buy their own home but can rent from you.
Fix and Flip Properties
If being a landlord isn’t something that interests you, consider fixing and flipping homes. This investment opportunity requires some real estate knowledge because you must be able to find undervalued properties that you could fix up and sell for a higher price.
You’ll need a network of reputable contractors that can work with you, helping you fix the property up and making it worth more. Typically, fix and flip properties are sold within 6 months to increase profits and decrease the holding costs of keeping a property that you aren’t renting out.
It can be a lot of work to fix and flip, but you can leverage your investment by borrowing funds to buy and fix the property, paying the loans off when you sell the property for a profit.
Invest in REITS
REITs are real estate investment trusts. These are investments in real estate companies that buy commercial properties, manage them, and eventually sell them. The REITs sell shares to investors allowing you to take part in the commercial real estate investment without owning any physical real estate yourself.
As a shareholder, you earn dividends from either monthly rent or interest depending on how the REIT funded the project. Some buy properties, rent them out, and manage them. Others fund the debt side of a real estate project, acting as the lender.
Either way, REITs must pay out at least 90% of their profits to the shareholders. Whether they pay monthly dividends or less frequent dividends, you earn regular income plus equity build up and capital appreciation when they sell the property.
You earn a prorated amount of the profits based on the amount you invest. Some REITs allow investments as low as $100 and others require investments in the thousands.
Invest in Crowdfunding
Crowdfunding is another passive real estate investment. You become a real estate investor without the need for a lot of capital.
The crowdfunding platform offers opportunities to invest in a property’s equity or debt, depending on the projects going on at the time. You can choose how much to invest in each project, splitting up your capital among many different investments.
Like REITs, you may earn dividends from rent or interest, and you’ll see a return on your investment when the investment matures.
Buy Stocks of a Real Estate Company
Even though you may be trying to diversify from the stock market, investing in real estate stocks can make you a real estate investor.
You can buy stocks of real estate companies and ride the wave as they navigate inflation. Since real estate companies tend to do well during inflation, it can be a great way to get a liquid investment that you can buy or sell at any time if you’re just starting out.
How to Qualify to Invest in Real Estate
Most people assume you must be wealthy or an accredited investor to invest in real estate. Today, that’s not the case, though.
Here’s how to qualify.
Investing in Physical Real Estate
If you want to buy physical real estate, you must qualify for financing. This could be the hardest way to invest in real estate but if you have decent credit, you might be surprised. While getting financing for investment real estate is harder than getting it for your primary residence, there are many options.
In general, here’s what you need:
- Minimum 680 credit score
- Maximum 43% debt-to-income ratio
- Proof of stable income and employment
- Proof you can afford your current mortgage plus a mortgage on a new property
- Proof of any experience you have managing rental properties
- At least 30% down payment
The down payment is often what gets people. You need $30,000 for every $100,000 you borrow, but that’s how you leverage your investment. You put down $30,000 but can invest in a $100,000 home (or more as you see fit).
If you’re fixing and flipping a home, you’ll also need money to fix up the home. You might be able to get it with your mortgage financing if you qualify for a Fannie Mae HomeStyle Renovation loan which is a loan that covers the cost to buy the home plus the renovations to improve it.
Investing in REITs or Crowdfunding
If you invest in REITs or crowdfunding, it’s a lot easier to qualify. As long as you aren’t investing in an investment that requires accredit investors only, most people can qualify. You just need to meet the minimum investment requirements, which are usually pretty low.
If an investment requires accredited investors, it means they require investors with at least $200,000 in income for the last 2 years and/or a $1 million net worth. This is only required for high caliber investments though.
Most REITs and crowdfunding opportunities start as low as $100.
Key Takeaway
Adding real estate to your portfolio can be a great way to diversify your portfolio during this time of high inflation. You don’t need a lot of money or experience in real estate to enjoy its returns.
