A lot of people ask me whether they should invest in real estate or in the stock market. Naturally, some people think that real estate investments are reserved for those who can pull out their checkbook and jot down a 6-digit number on the spot. Maybe that’s how things used to be a few decades ago, but today an investment of this sort does not require a whole lot of initial capital. My name is Ofir Bar, and I’ve been investing in tech start-ups, and real estate for the past 25 years, globally. Naturally, I’ve gotten to see my fair share of investments over this period of time, and I’ve witnessed a change in the way this game is being played. Let’s discuss a few options for those who want to be in the business, but do not have a whole lot of spare change available.
A real estate investment trust (REIT) is an organized group of investors, putting their money together in order to buy property - usually more than just one apartment or house, rather a building or complex. This trust is formed by companies with the tools and knowledge to buy, manage, maintain, and also sell real estate, while handling and distributing profits. What they don’t have is money on the spot, and that’s why they turn to investors rather than to banks for loans.
The big advantage here is that you don’t need to actually buy a piece of the property, but rather a share of it. In other words, you won’t necessarily own an apartment in the building bought by the REIT, so you don’t need to put out a sum equal to one apartment’s price, but you will get your share of the rent collected from all tenants (according to the number of tenants and the number of investors in the group). There are disadvantages to this system, though. As part of an REIT, a single investor usually doesn’t have plenty of say regarding how things are operated. The trust and its operators are the ones making decisions regarding the property. Also, your monthly income depends on how many other investors are in the trust, how large your initial investment is, and how many tenants currently occupy the property.
The World Wide Web has changed the way we shop, the way we get our news, the way we interact with friends, etc. It is only natural, thus, that it is going to change the way we invest in real estate. While the crowdfunding real estate scene is still taking its baby steps, it is nevertheless gaining popularity quickly and therefore can’t be ignored as a viable option. In this sense, crowdfunding real estate can be very similar to investing in the stock market. Usually the minimum investments are set low, and the property is an asset which you buy in hopes of its value rising (just like a stock would be). The crowdfunding websites also have a vast array of different real estate property types - residential, commercial, agricultural, storage, you name it. However, you must remember that, just like the stock market, there is a risk of losing money. You’re not looking at monthly rent here, and we’re usually talking about investments for short terms. Also, you must be careful when choosing the platform you want to work with, because naturally there are a lot of unprofessional (or even unethical) people trying their luck with raising capital through crowdfunding.
Just like you can take a mortgage in order to buy a house to live in, you can also do it for a house (or any other type of property) to invest in. It’s basically like making profits off of money you don’t currently possess, with the knowledge that you will be able to return that sum (including interest) and still have a marginal profit for yourself. This naturally requires the investment to be attractive on one hand, and the mortgage’s conditions to be comfortable on the other. I would recommend checking out several mortgage offers before deciding on one, just like you would when buying a house. With mortgage offers being a bit more generous than in the past, mainly as a way to stimulate the post COVID-19 economy, this option is definitely worth considering.
I, Ofir Bar, believe that you don’t need to have $500K waiting in your bank account in order to invest in real estate. However, you do need to keep in mind that the smaller your investment is, the smaller the profit is probably going to be eventually. It may be a good option for beginner investors in real estate, or for people looking for a small extra income. Good luck!