Real Estate Investment
Real Estate Investment

Indirect Ways of Investing in Real Estate

by Nancy Osborne, COO of ERATE®

May 28, 2007 - There are other ways to own real estate without going through the usual steps: locate a property, apply for a loan, place your down payment in escrow and then go on title method.  Real estate can factor into your investment portfolio without your having to go through this extensive ownership exercise.  The following are examples of just how to accomplish this:

REITS (Real Estate Investment Trusts)

REITS are diversified real estate companies that acquire and manage investment real estate for groups of investors or owners.  REITS trade on the major exchanges just like stocks and are fairly liquid or easy to cash out of.  The real estate trust invests in various types of properties in locations throughout the country such as shopping centers, office buildings, apartment complexes and hotels.  A REIT could have an equity position where its shareholders receive income from the rents received on a property or capital gains whenever properties owned are sold at a profit.  There are also REITS that specialize in providing funding for developers.

REMFS (Real Estate Mutual Funds)

Similar to stock mutual funds except they offer real estate oriented securities.  There are several major fund families that have real estate mutual fund offerings.  REMFS resemble stock mutual funds except the underlying asset involved is real estate as opposed to stock.  REMFS would be a good alternative for those potential REIT (Real Estate Investment Trust) investors who do not want the pressure of having to select the right mix of REITS as REMFS may invest in a portfolio of some 30+ REITS.  Just as would be the case in evaluating a stock mutual fund, with a REMF you want to choose one with a low expense ratio, established track record, minimal management turnover and one that has been around for a period of 5 or more years.

 

Real Estate Related Stocks

You may acquire the stocks of real estate related companies such as home builders, construction companies, timber companies or any businesses that supply goods or services to the real estate industry.

 

RELPS (Real Estate Limited Partnerships)

RELPS are groups of investors who pool their financial resources to purchase property.  The resulting transaction creates both limited and general partners.  The general partners manage the investment property for all the investors and distribute the pro-rated share of profits to each investor.  Because ongoing management fees and commissions tend to be high and RELPS are not publicly traded the returns have been only average at best for many investors. Also caution should be used because investors in limited partnerships may be required to make future contributions as required in their formation agreements called master limited partnerships.  Unfortunately RELPS tend to end up working out best for the managing partners and few others.  In a limited partnership you will likely have a high opportunity cost of investing and could easily find better returns under more liquid, hence lower risk, conditions elsewhere.  RELPS are not for the novice investor.

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Nancy Osborne has had experience in the mortgage business for over 20 years and is a founder of both ERATE, where she is currently the COO and Progressive Capital Funding, where she served as President. She has held real estate licenses in several states and has received both the national Certified Mortgage Consultant and Certified Residential Mortgage Specialist designations. Ms. Osborne is also a primary contributing writer and content developer for ERATE.

"I am addicted to Bloomberg TV" says Nancy.

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