Investing in Real Estate

July 15th, 2009 by 
PK

Is it time to invest in real estate?  Is it still too soon?  Are we near the top?

Regardless of where we are in the cycle, it's good to know what options are actually out there to invest in real estate... so we're going to go over a few options you've got.

Real estate investing is not limited to house 'flipping' or becoming a landlord.  There are other ways to play real estate - to the downside or the upside.  Real estate investing can cover much more than simply buying residential property to rent or resell.  Read on for a look at a few of those 'other' forms.

Real Estate Investment Trusts

Easily Invest in Real Estate... from mugley

Easily Invest in Real Estate... from mugley

Easily Invest in Real Estate... from mugley

Real Estate Investment Trusts, or REITs, are a method of investing in real estate either through mortgage pools or through direct ownership or property (mortgage versus equity REITs).  Companies organized as REITs are mandated to distribute 90% of their profits to investors.  REITs can invest in all forms of real estate - Residential, Industrial, Health Care, and many more.

Some of the larger REITs include SPG, the Simon Property Group; BXP, Boston Properties; and PLD, Prologis Trust.  Simon invests primarily in malls and retail spaces, Boston invests mainly in office properties, and Prologis  invests mainly in industrial properties.  A REIT that invests in apartment complexes and residential properties is AIV, Apartment Investment and Management Company.  These are some of the larger REITs in the market, there are hundreds of other options.

Exchange Traded Funds

There are a number of indices which track the performance of the real estate market in the United States.  Indices are published by Wilshire, Morgan Stanley, and Dow Jones, among others. REIT ETFs allow you to diversify across many REITs in a certain sector by only buying one ETF.  VNQ is a popular ETF managed by Vanguard which tracks the Morgan Stanley Capital International US REIT Index.  IYR, managed by iShares, tracks the Dow Jones U.S. Real Estate Index.  Internationally, RWX tracks a number of international REITs (but no US based REITs), and is managed by State Street.

Alternatively, regular mutual funds are also an option for investing in real estate.

Other Ways to Invest in Real Estate

The Case-Shiller Index, named for Karl Case and Robert Shiller, is the de facto standard for tracking the price of real estate in the United States.  Recently, two interesting products were released.  Dubbed 'MacroShares', these securities are designed to track the performance (either inverse, in the case of [[DMM]], or normal for [[UMM]]) of the Case-Shiller Composite-10 Home Price Index.  Of course, this is impossible since the index is back looking and released monthly (and for other reasons).

A more exotic (what's more exotic than exotic?) option is to write derivatives on real estate indices like the Case-Shiller.  You could theoretically hedge against the downfall of your home prices by buying option 'insurance' on real estate prices.  Sweet.

The End...

I am not a financial planner.  Do your own research and consult some experts if you have questions.  Just know that there are a lot of ways for you to get some exposure to real estate in your financial picture without buying housing.  Using these options allow you to diversify your portfolio and even hedge against downfalls in the price of your house.  Have fun.

Row house thumbnail sourced from www.flickr.com/photos/28541331@N00/2317892559, shot by Lauren.
      

PK

PK started DQYDJ in 2009 to research and discuss finance and investing and help answer financial questions. He's expanded DQYDJ to build visualizations, calculators, and interactive tools.

PK is in his mid-30s and works and lives in the Bay Area with his wife, two kids, and dog.

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