Investing in real estate can generate enormous wealth to people. By buying homes and rental properties, you can in return get lucrative profits well into your retirement years. This investment however, comes with its challenges that often keep investors away.
Rental properties will require that an investor be ready to allot some of his time towards remodeling of the property. You also have to be ready to listen to your tenants when they have problems at their houses. Say a pipe has leaked and they want you to repair or there is a problem with power supply and so on. Other tenants will want to wait to be chased around by their landlords in order to pay rent. Such are the challenges that often discourage some ready investors from taking this investment option.
Fortunately, there are other possible alternatives for investing in the real estate which do not need you to deal with rental properties directly plus the hassles that come with the business. The stock market, where you get to buy stock and hold it for whatever period you wish and sell it out when you are ready to – that’s where you can have it both ways with the real estate business.
Below, we look at five alternatives in real estate investment via the stock market:
1. Home builder stocks
Several companies build homes and they have listed stocks that anyone willing to join the real estate business indirectly can buy. This is how it works – these companies put up signs whenever they have new developments for any interested investor to join them.
Once you have bought the stocks, you keep them while watching out for price increases and the opportune times to sell. Price of such stocks is normally dependent on how the market of the real estate is going. Still as an investor, you will receive dividends of your stocks from these companies and in essence, benefit from real estate.
2. Real Estate Investment Trusts (REIT)
REITs are stocks of companies owning and operating real estate from which they earn income monthly. REITs are mandated by the law to return 90% of their profits to shareholders and therefore they pay high dividends on shares.
REITs mostly do not appreciate their price as much, but investors still get big returns from the large dividends.
3. Real Estate Exchange Traded Funds
This option offers an investor the opportunity of investing in a basket of many similar companies from which to buy stocks. People who fear individual stocks because of being associated with volatile prices find purchasing through an Exchange Traded fund (ETF) more apt to give them better returns.
By buying stocks from different companies, an investor also diversifies possible returns. ETFs do not lose much value when there is a downturn in real estate as compared to individual stocks which can lose up to 20%.
4. Real Estate Related Retail Stocks
Real estate related retail stocks are those stocks that in a way connect to real estate business. Everything that can be used to renovate, improve and add value to a home is a real estate related stock. Examples are; kitchen appliances, soundproofing materials, waterproofing materials and many more.
In times when there is little happening in companies selling homes, other people may then be renovating their houses using materials related to real estate. This means if an investor purchases related retail stocks, the returns will often be good, and within the real estate industry.
5. Housing Materials Companies
As an investor, you have a huge potential to generate wealth by investing in companies that manufacture house building materials. Residential and commercial real estate require building materials in the process of putting them up. When demand for real estate shoots up, the demand for the building materials also rises booming their prices as well.
The demand and price of housing materials is also dictated by some weather and climatic occurrences. For instance, when natural disasters like tornadoes or hurricanes hit and destroy buildings, rebuilding them will definitely require new house building materials. In all these instances, your stocks will be worth more, signaling more returns for your investment.