Real estate experts have for time immemorial said that the real estate sector is for everyone and that investments made there could be life-changing in many ways, for people who haven’t given it much thought. Investors can fit real estate investments into their strategy and portfolio even in times when the equities markets remain volatile, and other investments remain risky.
The housing market is usually the place where real estate investments are made by regular people. Home buyers looking to invest in their own home know that it is something they are going to be grateful for. Many homeowners have a large portion of their value tied to a housing mortgage. However, buying a primary home where one dwells is not the only way to invest in the real estate sector. There are other ways that regular people can invest in the real estate market including buying secondary properties like homes that can be rented out online, real estate income trusts and real estate limited partnerships.
Not All in One Basket
Like with just about every other investment, in this sector too, it is important to remember not to put all your eggs in the same basket. While individual choices can change for person to person depending on income type and usage of the said property, a simple rule to remember is that a single asset should not take up above 50 per cent of a portfolio.
“A portion of your portfolio should be in housing or hard assets,” a senior analyst at the Real Estate Investment Network in Vancouver recently told a media organisation. “Our clients lean towards owning their own homes and direct real estate. Our philosophy is that a good piece of real estate is like a blue-chip stock. It won’t make you rich overnight, but it will perform well.”
However these are vulnerable times, many people are questioning whether it is a wise move to buy real estate at a time like this when prices are falling on a yearly basis. Some experts clarify that buying a primary residence for your own use is not really an investment in a traditional sense. It is unlikely you would sell and move out of the area to make a profit if you see prices in the area appreciating, especially if you enjoy living in the house.
[pullquote align=”normal”]”A portion of your portfolio should be in housing or hard assets” [/pullquote]
A good way to make smart decisions in the real estate sector is to look at trends in the area your property is located. Don’t rely on current prices and neighbourhood statistics alone; explore other things such as economic development in the area or any new ventures coming up in the future.
Similarly while buying a second home to use as a vacation property can be a great idea and an excellent way to bring in some additional income when you aren’t using it, it can be difficult to operate and oversee. While prices have increased, so have expectations and expenses. The maintenance expenses that come along with a vacation property are sometimes unexpected by buyers.
Apart from primary and secondary homes, other ways to invest in the real estate sector include REITs (Real Estate Investment Trust) and RELPs (Real Estate Limited Partnership). A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges like a stock. REITs provide investors with an extremely liquid stake in real estate. They receive special tax considerations and typically offer high dividend yields.
RELP and REITs
A RELP (Real Estate Limited Partnership) is a limited partnership entity organised to invest in real estate. A Real Estate Limited Partnership is typically organised with an experienced property manager or real estate development firm serving as the general partner. Outside investors are then sought to provide financing for the real estate project, in exchange for a share of ownership as limited partners.
REITs (Real Estate Investment Trust) are usually a safe way for average investors to make their way into the property market and can often be viewed as an investment that is linked to the overall scenario in the equities and trading markets. They can be affected by interest rates and trends in the equities markets. Since REITs are tied to market sentiments, some new investors find it a risky investment and wish to stick to traditional methods of investing in the property market that have tangible results. However, studying REITs well and knowing what to anticipate can be a great way to bring in diversity to your investment portfolio.
RELPs too are similar; they are essentially privately held versions od REITs. They can sometimes be difficult to access for an average homeowner or new investor since in some provinces you have to be an accredited investor and have assets above $1 million to invest in them. However, RELPs aren’t tied to the public markets, which make experts feel reduces the volatility that come with them.