Investing in Real Estate without buying physical property

*This is a guest post also this post may contain affiliate links: Joseph Hogue, CFA is an investment analyst and blogger. He runs six websites on topics including personal finance, investing, crowdfunding and making money from home. A veteran of the Marine Corps, he holds the Chartered Financial Analyst (CFA) designation and lives with his family in Medellin, Colombia. Real estate investing can be a stable investment that makes tons of cash but avoid the headaches with this strategy I started investing in real estate fresh out of the Marine Corps in 2001. I bought one house, fixed it up and then refinanced it to buy another. The idea was that rents would be enough to pay the mortgages and any maintenance costs. I was finishing my degree so figured I would have enough time to manage the properties myself. I learned a lot about real estate investing over the following six years, including the fact that real estate is by far a passive income investment like a lot of 3am infomercials would have you believe. I loved the consistent cash flow from the properties and the fact that someone else was paying my mortgage but the constant headache of managing the rentals was just too much. About the same time, I started investing in stocks. It had its own advantages but I didn’t feel like I owned a real asset like I did with real estate investing. Then, I learned how to put both investments together and haven’t looked back since.

Real Estate Investing without the Property Headaches

Investing in real estate without the constant property headaches means taking advantage of a special type of company called a real estate investment trust (REIT). These companies own real estate but don’t have to pay income taxes as long as they pay out most of the cash flow to investors.

An army of professional property managers is hired to manage the properties, usually in the tens of billions worth or more. The size of these companies means they invest in many properties across the United States and some across the globe. That means the investment isn’t at risk to a weak property market in any particular area. Since the company doesn’t pay taxes, it’s an extremely efficient way to manage real estate and great cash flow for investors. You buy REITs just like you would any other stock and some even pay dividends on a monthly basis. Including the price and dividend return, REITs have provided a 10.8% annual return over the last 20 years. That’s well above the annual 7.5% return on stocks in the S&P 500 and with none of the hassles that come when you own property yourself. An Even Easier Way to Invest in Real Estate There are more than 1,100 REITs available for investment, each with its own investment model including different types of property and different locations. Just like with stock investing, trying to pick just one REIT in which to invest can leave you at risk of something happening to that one company. To avoid this, you want to invest in at least five or more REITs so you spread your risk across different types of property and locations. Unfortunately, trying to invest in a handful of REITs can get expensive on most online investing accounts. Just investing in 10 different REITs a few times a year can cost as much as $300 in trading costs even on the cheapest online investing site. But there’s an easier way to invest in REITs and it involves my favorite investing tool for finding the best investments. I started investing on Motif Investing earlier this year. It’s a new investing website that lets you group up to 30 stocks or exchange traded funds (ETFs) and then buy them all with just one trade. Investing in those same 10 REITs a few times a year would cost just $30 on Motif. I’ll talk more about how to find real estate investments and REITs on Motif below but first I wanted to share this infographic about one of the best features of the website. All the stock groups created by investors are available to see on the site, making for a huge list of investing ideas. [Tweet “Real Estate Investing without the Property Headaches”] How I Find Real Estate Investing Ideas on Motif Investing Investing in REITs is easy on Motif and you can combine your real estate investments with some stocks and bond funds for an all-around portfolio that costs just $10 each time you invest more money.

1. Sign up for an account on Motif. There’s no minimum but you will need at least $300 to invest in a group of stocks.
2. Click on ‘Explore’ in the menu and then on ‘Motifs’ to see all the groupings created by investors.
3. You can filter by more than 10 categories including Real Estate funds.
4. Investors have created more than 700 funds of real estate stocks and REITs on the website, each available to look through for ideas on your own picks.

One motif just called ‘Real Estate’ holds five REITs that own commercial and residential property across the United States. The group of stocks pays a 6% dividend yield and has increased by an average of 23% over the last year. You can completely customize your own group of stocks, up to 30 in one fund, and then invest in them all with one trade. It’s a great way to start investing and can save you a lot of money in trading fees. Tie the idea of investing in groups of stocks on Motif in with this video and ebook on how to start investing for beginners and you’ll be set to reach your financial goals. ]]>