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By David Chang, The Motley Fool
The typical home value in the United States is $331,533, a 20.3% increase in one year. This increase equates to just over $67,000 from 2021 to 2022, a record high. For the first time ever, the increase in home values exceeded the median earnings of the average U.S. worker, which hovered around $50,000 last year.
Invest in real estate using a REIT
A REIT is a real estate investment trust. REITs allow investors to invest in a wide range of real estate, from commercial buildings to apartments and even hotels. By law, REITs have to pay out 90% of their taxable income to investors. Investors can earn this dividend without having to go through the hassle of managing property. Though, due to depreciation, that 90% figure can be much lower.
Many REITs are publicly-traded as a stock or fund. Investors can buy and sell shares of a REIT just like a stock. Many brokerages now allow fractional ownership. This allows investors to buy shares of a REIT with a minimal amount of money.
The downside for REITs is that during market downturns the shares can be volatile and the dividend is taxed as income. Also, since 90% of the taxable income has to be paid out to investors, REITs are limited in reinvesting earnings to buy more properties.
Invest in real estate through crowdfunding
Crowdfunding allows investors to directly invest in a portfolio of properties through an online platform. Popular platforms include Fundrise, Crowdstreet, and RealityMogul. These platforms allow investors to invest as little as $10. Real estate crowdfunding has lowered the barriers to entry and given investors access to real estate investments that were only available for wealthy investors.
While investors may receive higher returns, fees can be as high as 2.5% a year. In addition, certain platforms may have liquidity requirements where investors are required to keep their funds in for a specific period of time.
First-time home buyer loans and programs
There are several programs available for first-time home buyers through a state or federal agency. Using funding from housing bonds, tax credits, and other federal and state agencies, these programs provide financing and resources for down payment assistance, affordable mortgages, and other services. Investors can find more information on their state’s housing program website.
Here are other first-time home buyer programs to consider:
- FHA loans are mortgages back by the Federal Housing Authority, and require a 3.5% down payment.
- VA loans are for military service members, and require a 0% down payment.
- USDA loans are government-backed loans for eligible properties, and require a 0% down payment.
- Fannie Mae and Freddie Mac are conventional loans that require a 3% down payment.
While this option is more expensive than the others, if you are able to qualify and afford the monthly mortgage payments, then you will be able to at least build equity in an asset.
Read more: How to Earn More From Your REIT Portfolio
Real estate has historically been a great way to diversify your investment portfolio. In addition to offering passive income, real estate also has the potential for appreciation. In the past, only the wealthy had access to such investments. Now there are many options where even investors with minimal amounts of funds are able to participate in the upside from the hot real estate market.
See more at The Motley Fool
