February 28, 2024

Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.
Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.
Motley Fool Issues Rare “All In” Buy Alert
You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More
Real estate is humankind’s oldest and most precious resource, from countless wars fought over it to Monopoly, the iconic board game. Owning land is a great way to build wealth.
But real estate is expensive, and buying whole buildings is out of reach for many people. Fortunately, you don’t need to be rich to be a real estate investor.
Here are three ways $5,000 can buy you a diverse portfolio of property that pays you passive income just for being a part owner.
Real estate investment trusts (REITs) are businesses that acquire and rent out real estate. The U.S. Congress established REITs in 1960 so that retail investors could enjoy the passive income real estate can produce.
REITs must pay out at least 90% of their taxable income as dividends, so they typically make great dividend stocks.
Most REITs tend to focus on a specific type of real estate. A REIT might specialize in anything from retail properties to industrial, office space, medical buildings, shopping malls, etc.
Here is a great starting point for exploring different REITs:
Publicly traded REITs trade just like regular companies, so you can build a diverse real estate portfolio by holding shares of different REITs without a ton of money.
Real estate exchange-traded funds (ETFs) are a simple solution if you don’t feel comfortable selecting individual REITs. They are collections of REITs and real estate-related stocks, like builders or developers.
ETFs typically lean toward a specific goal; for example, some ETFs focus on high dividend yields, while others might focus more on growth. Many ETFs follow some sort of index by design.
There are many ETFs, and you should find real estate ETFs that fit your risk tolerance and investment goals without too much trouble.
Checking any fund’s fundamentals is essential before buying ETFs. Every fund has documents that tell you what is in the fund, the weightings of each holding, its performance history, and its expense ratio.
Investors looking for something more speculative can consider crowdsourced private equity real estate. With private equity real estate, developers collect funds from outside investors to fund projects. However, it used to be only for the ultra-rich and those already connected to the industry.
Companies have emerged in recent years that offer crowdsourcing, where many investors can pool their money to fund projects. They make private equity real estate more accessible to the retail investor, some requiring as little as $10 to get started.
But these private equity projects are the riskiest form of real estate investing on this list. REITs and ETFs are highly regulated, but crowdsourced projects aren’t. Each platform will have different rules and conditions, so investors should learn them inside and out.
Additionally, professionals manage REITs and ETFs; they invest on behalf of shareholders to generate the best returns possible. But you’re more independent in the private equity world; knowing whether a deal is good or bad is on you, so don’t jump in without feeling knowledgeable first.
One vehicle is not necessarily better than another; each path into real estate investing depends on the individual investor and their knowledge and risk tolerance. Diversification is just as crucial to managing risk in real estate as it is in stocks.
Retail investors can build a blended portfolio using all of the above; start with a portfolio foundation made with high-quality REITs and ETFs. Private equity projects can be the speculative fun that offers higher returns but won’t ruin a portfolio if they’re a small portion of your funds.

The Motley Fool has a disclosure policy.
Market-beating stocks from our award-winning analyst team.
Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/20/2022.
Discounted offers are only available to new members. Stock Advisor list price is $199 per year.
Calculated by Time-Weighted Return since 2002. Volatility profiles based on trailing-three-year calculations of the standard deviation of service investment returns.

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool’s premium services.
Making the world smarter, happier, and richer.

Market data powered by Xignite.

source

About Author

Leave a Reply