If you already have experience gained on the stock market, you may also be interested in investing in the real estate market. But what if you simply don’t have enough money to buy even a small plot of land or an apartment? We present four ways to invest in real estate and not buy any of them. Diversification is the basis of investing. Therefore, in addition to the stock market, it is also worth considering investments in the real estate market. The easiest way is to buy one of them. However, not every investor has enough capital to allocate to it. Fortunately, there are several ways and financial instruments that will allow you to start your adventure with the real estate market without buying it yourself.
Real estate crowdfunding
Crowdfunding is no longer just another form of fundraising. Now it is a way of investing that also occurs in the real estate market. Developers, instead of using financing from the bank, decide to raise money for investments from private investors themselves.
Of course, for each project there is a different minimum threshold for joining the investment. For example, in the United States, you must report income for the last two years in the amount of USD 200,000.
A well-known company that specializes in real estate crowdfunding is Mzuri CFI. Here it is mainly about investing in an apartment for rent. The minimum entry threshold for the investment is approx. USD 11,000. On the other hand, shareVestor.com allows you to invest in development, rentier and land projects starting from USD 1,000.
Real estate closed-end investment funds, i.e. closed-end investment funds
Funds investing in the real estate market belong to the category of closed-end investment funds, the so-called closed-end investment funds. Investors can purchase their investment certificates, usually in a non-public offering organized periodically by TFIs. Investment certificates are securities and, like shares, can be re-traded.
Individual closed-end investment funds specialize in investments in various types of real estate. You can find those that invest in service, commercial and office premises. These are, m.in, Agio Nieruchomości Handlowe FIZ AN, PZU FIZ Sektora Nieruchomości 2 or Skarbiec Dodochodowwowych Nieruchomości FIZAN. On the other hand, among the funds investing in tenement houses, employee apartments and building plots, we can find, for example, Comprehensive Revitalization and Reconstruction of Polish Tenement Houses FIZAN, Sirius Link FIZAN, Murapol HRE FIZAN or PKO Nieruchomości Handlowego FIZAN.
Unfortunately, the entry threshold for the investment is quite high, because it amounts to about PLN 200 thousand. It should also be remembered that investments in closed-end funds are certainly less liquid than those in open-end funds. On the other hand, closed-end investment funds offer more diverse investments to choose from. The low liquidity of this type of instruments and the high entry threshold make it not an investment for everyone. The moment of starting the investment is also crucial. The history of BPH FIZ Sektor Nieruchomości, which has achieved a loss of 89% in 12 years, shows that this type of investment is not without risk.
Before we invest in this type of fund, let’s find out how the value of certificates is valued and what is in the portfolio. We will be able to quickly estimate whether we are not buying certificates too expensive.
Through ETFs you can invest even in furniture trading companies
Exchange-traded funds (ETFs) are another financial instrument that will allow you to gain exposure to the real estate market. A good example of this is the Vanguard REIT ETF. It acquires shares in companies that own real estate or those that rent commercial space or apartments.
Another option for investing in the real estate market is to invest in ETFs that have shares of companies related to the real estate market in their basket. These can be construction companies, but also those trading in interior design. An example of this type of ETF is the iShares U.S. Home Construction ETF.
REITs
Real estate for rent can be invested in through REITs (Real Estate Investment Trust). This is a special type of investment fund that invests most of its assets in real estate and earns money on long-term rental. It is true that in Poland this initiative is still being forged painfully, but the prospect of this type of instruments has an increasingly practical dimension, also in Poland.
REITs are distinguished by several features. Firstly, in most countries they operate on preferential taxation rules, they are usually exempt from corporate taxes. In addition, they invest in real estate directly and indirectly, e.g. by buying shares of companies that have real estate in their assets. Additionally, the REIT should pay out the majority of its profit to investors in the form of dividends.
REITs are the most popular in the United States. They are also in high demand in Canada and Japan. In Poland, REITs have not yet been regulated. However, according to the original draft of the act in our country, REITs were to be called real estate rental companies (SRWN) and invest in the commercial real estate market. There is a chance that REITs will appear on the Polish market in the coming years in the form of FINNs (companies investing in real estate rental).
In conclusion, if you want to invest in the real estate market, you don’t have to buy any of them at all. The above methods show how you can gain exposure to the real estate market also with a little less capital. However, it should be remembered that the real estate market is governed by its own laws and the right time to enter into investments is of great importance. In addition, investing in real estate is certainly burdened with quite a high risk, also depending on the situation on the global market. Therefore, as in any case, the investor must assess the investment risk himself and consider whether he is ready to bear its consequences, not only in the form of possible profits, but also losses. And the fact that you can lose on real estate investments is reminded by the history of several Polish real estate funds launched years ago by domestic investment funds.