Ali Ata: You Can Invest in Real Estate without Owning Property
If there’s anything Ali Ata has learned from years of talking to prospective clients, it’s that Americans favor real estate over other types of long-term investments. The cost of investing in real estate, however, remains prohibitive for many people. The good news is that there are ways to cash in on real estate without actually having to bother with the upfront and maintenance costs of owning property.
You have three options:
1. A real estate investment trust (REIT) is a company that operates income-generating properties. You can buy shares in a REIT, upon which case you will become a landowner of sorts and will be entitled to a portion of the income the company earns. There are REITs that operate a diverse selection of properties while others tend to specialize in specific types of real estate.
2. Real estate mutual funds are a collection of real estate investments, including REITs, that you and other investors can put your money in. The beauty of this particular investment vehicle is that it allows you to diversify instead of focusing on just one particular investment.
3. Like real estate mutual funds, real estate exchange-traded funds (ETFs) allow you to diversify, the main difference being that they cost less and offer a broader index than the former.
Ali Ata warns that, like any other type of investment, these vehicles do come with their share of risks. For instance, even though you’re not buying actual property, the state of the property itself will affect your earnings. Low-quality properties will, understandably, yield less, so it pays to get to know which REITs your money goes to.
Additionally, factors like the economy and current interest rates may increase or reduce your returns. High interest rates make it harder for REITs to obtain and own properties. However, an increase in interest rates caused by a rising economy could mean an increase in profit for REITs, which would translate to better returns for their investors.
You have three options:
1. A real estate investment trust (REIT) is a company that operates income-generating properties. You can buy shares in a REIT, upon which case you will become a landowner of sorts and will be entitled to a portion of the income the company earns. There are REITs that operate a diverse selection of properties while others tend to specialize in specific types of real estate.
2. Real estate mutual funds are a collection of real estate investments, including REITs, that you and other investors can put your money in. The beauty of this particular investment vehicle is that it allows you to diversify instead of focusing on just one particular investment.
3. Like real estate mutual funds, real estate exchange-traded funds (ETFs) allow you to diversify, the main difference being that they cost less and offer a broader index than the former.
Ali Ata warns that, like any other type of investment, these vehicles do come with their share of risks. For instance, even though you’re not buying actual property, the state of the property itself will affect your earnings. Low-quality properties will, understandably, yield less, so it pays to get to know which REITs your money goes to.
Additionally, factors like the economy and current interest rates may increase or reduce your returns. High interest rates make it harder for REITs to obtain and own properties. However, an increase in interest rates caused by a rising economy could mean an increase in profit for REITs, which would translate to better returns for their investors.
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