Editor’s Note: Hal Cranmer has had a wild past. Born in India, he’s lived all over the world and started his working life as an Air Force Special Operations and Commercial airline pilot. After 9/11 brought him down from the clouds, he entered the corporate world and rose to the level of running a $36M machining plant. Yet from 2006 on, he caught the passion for real estate investing. He flipped a bunch of houses in Minneapolis and still owns several multifamily rentals there. Lately, he is into assisted living, and owns 5 assisted living homes in the Phoenix area. He loves to follow real estate trends, both locally and nationally.
As an ongoing contributor to Mogul’s “Market News Updates,” Mr. Cranmer provides us with his own unique, lively and thought-provoking commentary on the timely industry news and events of today that are impacting our industry. And be sure to check out our other super-helpful Market News Updates. For now, enjoy...
From Hal Cranmer...
It’s amazing how the real estate industry continues to boom after all these years. It’s no wonder that people love to invest in properties – the returns have been excellent.
Whether you’re a newbie or an experienced investor, I’m pretty sure you’re always on the lookout for ways that offer the best return for the least effort...
If you think that the only way to invest in real estate is to buy properties on your own, take out huge loans and put all the risk on yourself—think again.
There are also many ways to invest in real estate without dealing with tenants, contractors and other tedious landlord/flipper work.
We’ve got some of your other current options in this lesson…
While you may be working on your own rentals and flips, it’s good to have your money working for you in other investments. All of these investments have something to do with real estate. That way you can still invest in something you know a lot about (one of Warren Buffet’s Rules for Investing):
1. REITs
The reason people want to invest in REITs (real estate investment trusts) is that they want to be able to invest in real estate without having to hold physical properties. REITs do that. They also enable you to expand your holdings into different classes of real estate, depending on the REIT.
According to Chris Ball, the financial advisor of Build Financial Muscle, investing in REITs offers diversity in an investment portfolio and they don’t correlate with other forms of equities.
He says that one of the many reasons why he wants to invest in REITs is that: “It also gives me exposure to real estate without having to be a landlord.”
Apparently, he is not alone. A lot of people invest in REITs to expand their portfolios.
Also, the long-term returns REITs offer are pretty nice despite that fact that the real estate market has its ups and downs. The steadier returns (compared to stocks) are a reflection of the professional real estate management REIT’s offer.
One good feature of REITs is that they must pay out 90% of their income to shareholders. Many REITs will pay out 100%.
However, the U.S. Securities and Exchange Commission (SEC) warns that non-stock-market-traded REITs pose a risk to investors. The risks include high fees, a lack of liquidity and transparency. You may want to stick with your publicly traded REITs.
2. Real Estate ETFs
An ETF (exchange-traded fund) is a way for investors to pool their investments (stocks or bonds) in a fund. It has broad diversification, as well as low costs, which is why it’s quite similar to mutual funds. ETF’s can even have REITs in them as part of their portfolio.
There is basically one difference between an ETF and a mutual fund. Instead of buying an ETF through a fund company like you would with a mutual fund, you buy shares of an ETF from a brokerage like you would buy shares of a stock.
If you’re looking to diversify your real estate investments investing in real estate ETF is a great idea. Many ETFs follow an index, similar to a mutual fund that follows the Dow Jones average. An example would be the Dow Jones Real Estate Index through an ETF. You can basically invest in the whole real estate industry at once.
Don’t know where to start?
There are TONS of real estate-themed ETFs. Just do a little research, talk to your financial advisor and weigh the possibilities.
Another example of a real estate ETF is Vanguard’s VNQ. It invests in stocks coming from REITs that buy different types of properties, such as hotels, office buildings, etc. A third example would be iShares IYR. It’s similar to VNQ because it gives you access to REITs and local real estate stocks.
3. Home Construction
If you’ve kept up with current real estate news, you’d know that the United States is short on housing inventory. This is exactly why many real estate professionals foresee that the business of home construction will continue to skyrocket in the next decade or so.
For this reason, it’s exactly why investing in real estate construction is a smart move. With this market boom, comes an entire industry of homebuilders looking to rehabilitate older neighborhoods or develop new ones. So it’s better to get your money in there as early as possible.
You might want to watch out for large homebuilding companies, such as Lennar (LEN), LGI Homes (LGIH), Pulte Homes (PHM) and D.R. Horton (DHI). Let them build homes while you sit back and share in their profits, rather than just spend your time going to Home Depot and doing demo.
4. Real Estate Mutual Funds
Similar to investing in real estate-themed ETFs, you can definitely invest in mutual funds focused on real estate as well.
Many investors swear by investing in it, but you have to find the right one for you. Investors have shined the light on DFREX real estate mutual funds because of its low costs and its clean track record shows that you can be confident with your ROI. Not only that, years of academic research from Nobel Prize-winning economists have supported DFREX.
Another real estate mutual fund you can take into account would be TIREX. It has over $1.9B in assets, plus low fees and diversification in real estate holdings.
5. Real Estate-Focused Company
Did you know that there are a lot of companies that manage and own real estate properties without being a REIT? But they’re kind of hard to find. You have to do a little research. Plus, they usually pay a lower dividends than REITs.
Some of the many examples of these companies may be:
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Timeshare companies
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Hotels and
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Commercial real estate developers
But remember to do due diligence prior to buying stock in these companies. As usual, talk to your financial advisor.
DISCLAIMER: We are not financial advisors. This lesson is for information based on our own experiences and does not in any way constitute financial advice. You guys are probably pretty smart on this stuff already. Huddle up with your financial advisor and discuss your particular situation. Don’t use our lessons as recommendations to buy or sell any securities.
Investing in real estate-focused companies is great if you want to be exposed to a specific type of investment. Make sure you take the time to research the investment and make sure it sounds healthy.
What’s Your Next Move?
What are your thoughts on these investment opportunities? Are you willing to take the risk? Share your thoughts and comment away.