Real estate investing used to be only for the wealthy. They were the only ones who had the access and capital to invest in income-producing commercial real estate. This gave wealthy investors the advantage of using real estate to build and maintain wealth.
That's no longer the case. Anyone can invest in wealth-producing real estate through real estate investment trusts (REIT) and other options. However, although real estate investment is open to everyone, Ultra-wealthy people invest more money in alternative investments I like real estate more than other investors. Here, we take a closer look at the data on why wealthy investors are drawn to alternatives such as real estate, and why other investors should also consider following their money and increasing their allocation to real estate. Masu.
Why wealthy people invest in real estate
According to a survey by an alternative investment management company. KKR, wealthy class The family allocated 11% of its portfolio to real estate. This was his third place after 31% of listed stocks. private equity It was 27%.
Wealthy people have meaningful allocations to real estate because it has proven to be a solid investment. Based on the NCRIEF Property Index, real estate has returned 8.8% annually over the past 10 years. That's significantly higher than the 1.5% annual return over the past 10 years for bonds, which many wealthy investors use to diversify their portfolios, reduce risk and generate income. Real estate can achieve these goals while delivering higher total returns through increased asset values. In addition, there are tax benefits and inflation benefits that bonds don't have.
The benefits of real estate diversification are worth noting. The main reason wealthy people invest in alternative investments is to reduce their exposure to public equity and bond markets. Alternative investments such as private equity and real estate have a lower correlation to day-to-day fluctuations in public markets, helping investors reduce their returns. volatility and increase profits.
How to invest like the wealthy
Congress created REITs in 1960 to allow anyone to invest in income-producing and wealth-producing real estate. To start investing in REITs, all you need to do is open and fund a brokerage account. He has two solid options for beginners.
real estate income
real estate income (oh -0.78%) is a diversified REIT that invests in independent retail, industrial, gaming and other real estate.enter into a long-term contract net lease Ideal for properties with high quality tenants. With a net lease, the tenant is responsible for property taxes, building insurance, and maintenance costs. Wealthy individuals often invest in net lease real estate. This is because these properties are more passive investments compared to other types of real estate investments.
REITs pay monthly dividend The current yield is 5.9%. Since going public in 1994, dividends have increased 124 times, with dividends growing at a compound annual rate of 4.3%. This expanded revenue stream and rising real estate values have enabled Realty Income to achieve a strong annual compounded total return of 13.9% since going public. REIT stocks can cost as little as $50 per share, making them a very affordable investment.
invitation housing
invitation housing (INVH -1.45%) A residential REIT that focuses on single-family rental homes. Many people start investing in real estate by purchasing rental properties. Invitation Homes An easier way to get started. The company offers instant diversification by owning or managing more than 100,000 homes in 16 markets, and is extremely low considering the stock is around $35 per share for him. Achieved at low cost.
The REIT pays a quarterly dividend and has a yield of 3.2%. Invitation Homes is better than owning a rental property because it provides a truly passive income. There's no need to manage tenants or deal with unexpected repairs. This can quickly turn your property into a goldmine. Invitation Homes has historically provided investors with a steadily increasing source of passive income. Dividends have increased every year since going public in 2017, increasing by nearly 8% at the end of last year.
By creating REITs, Congress leveled the playing field so that anyone could invest in income-producing real estate. In recent years, technology and additional legislation have made personal real estate more accessible. Several online platforms have been launched to allow anyone to invest in personal real estate and benefit from the additional diversification that these uncorrelated investments offer. Some notable options are:
- Fundraising activities: Fundrise allows anyone to invest in personal real estate through funds. Non-traded REIT. The company's flagship funds focus on single-family rental homes, multifamily housing, and industrial real estate. Anyone can invest in this platform from as little as $10.
- Arrived: Arrived offers anyone the opportunity to invest in professionally managed rental homes and vacation rentals. The company sells real estate interests for as little as $100 on its website.
It's easy to invest like the wealthy
Historically, wealthy people have invested in real estate because it is a solid investment. It generates passive income, offers attractive returns, and has other benefits as well.
However, you don't have to be wealthy to invest in real estate. Anyone can invest in his wealth-generating REITs and personal real estate through an online portal. Real estate helps diversify your investments and build wealth, making it a sure-fire addition to any portfolio.
Matt DiLallo holds positions at Invitation Homes, KKR, and Realty Income. The Motley Fool has positions in and recommends Invitation Homes, KKR, and Realty Income. The Motley Fool has a disclosure policy.
