Attention female investors: Have you considering real estate investing? Owning real estate as an investment is not as complicated as you may think.
Stocks and bonds aren’t the only places to put your investment dollars to work. Real estate investing is a great way to diversify your portfolio and enhance your returns. Yet far too many women shun this asset class, fearing they will quickly lose their principle.
It makes sense. Women aren’t investing in large numbers to begin with, so why would they pour money into real estate investing? According to an S&P Global survey conducted last year, just 26% of females in the U.S. invest in stocks and bonds. That means more than three-quarters of the nation’s women aren’t participating in the markets, let alone investing in real estate.
That’s even though real estate investing can be a great way to diversify an investment portfolio, generate income, and boost your returns. And diversification may be particularly important during the COVID-19 pandemic when volatility rules the stock market. “With real estate you don’t have the same correlation to stocks,” says Carol Fabbri, a CFP and Principal at Fair Advisors. “It’s a good way of diversifying. You want to diversify as much as you can to reduce volatility in your portfolio.”
Whether you’re looking for a hands-on approach or want passive exposure, there are easy ways to invest in real estate.
INVESTING IN REAL ESTATE TRUSTS GIVE YOU HANDS-FREE EXPOSURE
For women who want exposure to real estate investing but don’t have the time or desire to own physical properties, real estate investment trusts are a popular option. REITs are publicly traded companies that invest in income-producing real estate or purchase residential and commercial mortgages.
They trade like stocks but are required by law to distribute 90% of their earnings to shareholders via dividend payments. That has made REITs popular with income-seeking investors. You can purchase REITs via mutual funds or exchange-traded funds.
REITs invest in a range of real estate, including offices, apartment buildings, warehouses, malls, cell towers, hotels, and mortgages. Many REITs zero in on one area of the real estate market, while others have several different property types in their investment portfolio.
The majority of REITs are publicly traded equity REITs, but there are also mREITs or mortgage REITs that purchase a pool of commercial or residential mortgages, and private REITs that don’t trade on the stock exchanges. At last count there were 225 publicly-traded REITs in the U.S. alone, giving all types of investors lots of options. “It’s a more diversified way of getting real exposure than buying the house down the street,” says Molly Ward, a Financial Advisor at Equitable Advisors.
GO WITH A LOW COST ETF TO MAXIMIZE RETURNS
Female investors just dipping their toes in REITs may want to consider REIT ETFs. Ideal for those without any specific real estate investing knowledge, they usually have reduced fees and invest in different areas of the market, says Fabbri of Fair Advisors. Even for women investors who want a particular mix of real estate exposure, ETFs can deliver. “You can get pretty specific and have little investments in a bunch of areas, diversifying within the asset class, which is great,” says Fabbri. There are currently more than 20 REIT ETFs publicly traded.
Another passive approach to real estate investing is purchasing shares in stocks that have a large real estate portfolio. It may not be their core revenue generator, but it gives you access to tangible assets with fewer risks. Starbucks and Exxon Mobil, are just two examples of companies with large real estate holdings.
OWN MORE REAL ESTATE THAN YOUR HOME
A home is many female’s largest asset, but it shouldn’t be their only real estate investment. Lots of females shy away from investing in physical real estate, worrying they don’t have the cash, knowledge, time, or skills to act as a landlord or renovate a property. They already own a home and think that’s enough.
But purchasing an investment property, while challenging, is easily doable. Sure, you need money upfront, but beyond that, a little knowledge and determination can go a long way.
“It’s important for women to build self-confidence in real estate. It’s not rocket science. It’s an unbelievable amount of detail and a lot of work, but the benefit is pretty enormous,” says Quinn Palomino, co-founder, and Principal of Virtua Partners, a global private equity firm that invests primarily in single-family residential rentals and hotels. “Some people are intimidated by real estate and my recommendation is: don’t be.”
TO RENT OR OWN?
Before you begin searching for a physical real estate property to own, you have to decide what you want out of the investment. If you’re buying real estate to generate rental income, your search will differ than if you’re looking for a fixer up to flip. Both choices will come with their own problems that have to be included in your decision-making process.
Take renting for starters. Ward of Equitable Advisors says investors expecting to get a steady flow of monthly income have to brace for the unexpected. There could be months where the property remains empty. Or a costly repair could drain all your savings. A fix-and-flip comes with its own set of risks, and overpaying for a property is a big one. As is underestimating the costs of repairs or demand for the home.
Either way you go, Palomino says it’s best to start out small and to learn from your mistakes. She points to purchasing a residential property as a first step and building from there. “I’ve seen too many people start a project that was too big, and it swallowed them whole. Traditionally, investors in real estate will buy a house and fix it up. It’s a great way to get started.” It doesn’t hurt that even despite the pandemic, pockets of the residential real estate market are seeing great demand.
For women thinking about investing in real estate, the unknowns can leave them on the sidelines. But with parts of the real estate market doing well and diversification important for long term investment success, it’s an asset class that definitely shouldn’t be ignored.
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