How can I invest in real estate when I've just started saving? What is real estate investing?
Real Estate investing takes many forms, but the general definition is using real estate to generate investment income for an individual. The most accessible way to do this is to invest in a Real Estate Investment Trust (REIT). An REIT is a company that buys, rents, and manages various rental properties and it uses money from investors to fund these purchases. They typically pay a high dividend (A dividend is a way companies share profits with investors) and consistent growth as the REIT continues to grow more valuable by buying more properties. REIT’s can focus on commercial properties, residential properties, and everything in between. It is a way to gain exposure to real estate without having to have the money to buy a house.
REIT’s can also have a community focus and be socially driven. My sibling recently told me about a REIT in California where you are able to invest in the community and get paid a 1.5% dividend each year, and the money goes to creating permanently affordable, community owned housing. I loved this example of using our capitalist system to help yourself have a secure future, while also enacting positive social change. Another way to invest in real estate is to own and rent properties, or to own and flip properties. In renting properties, you manage an apartment/house and you make money when the rent you collect is higher than the bills you are paying. It's a pretty volatile market as houses always need work so you need to take a hands on approach. But it’s really fun and can be a way to make a positive impact in the community. Flipping homes is very capital intensive as you buy a fixer up house, make repairs and upgrades, and than sell the house for a profit.
It's been interesting being a landlord while seeing a dialogue unfold around me about landlords essentially being evil. It reminds me of the book that first got me interested in real estate investing, Rich Dad Poor Dad by Robert Kiyosaki. The book involves Kiyosaki contrasting the lessons his father, an always struggling school teacher, taught him about money to what his best friends father, a successful business man, taught him. There is a narrative in which all landlords are evil and just out for themselves and their financial well being. I believe this narrative disenfranchises the person that believes it, and it also means less affordable housing. We live in a capitalist system, we need good landlords to provide affordable safe housing because this is our current system. Vote to create a new system, volunteer with organizations that promote the housing system you believe in, but right now we need to make the most of the system we have. The other narrative is that landlords are able to provide safe, secure, affordable housing to individuals who would otherwise not have a place to live. I own a triplex where I live in one unit and rent out the other two. I keep rent constant, make repairs and upgrades when issues arise, and when COVID-19 impacted their income I was able to discount their rent to an amount they could afford until they got on unemployment. This is not to convince you to change your mind, it is just a reminder that there are several perspectives to every situation, I love being a landlord and feel like I am able to make a difference in my community. If you are interested in real estate, REITs are a great way to get started investing in the market. Since I own a rental property, I only have about 1% of my nest egg saved in REIT’s but if I didn’t own property I would probably be aiming to have about 5% in them.
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