There are lots of other ways to invest in real estate apart from your primary home. For instance, you could buy a rental property, develop an empty lot, buy a chateau in France, or participate in a real estate investment trust (REIT) or limited partnership.
Real estate investment trusts (REITs)
REITs are publicly traded
trusts
or
associations. Your
capital
is pooled with other people’s
to invest in apartment and office buildings, shopping centers,
industrial buildings, hotels, and other real estate ventures.
The trust makes the investment decisions, and its shares
trade on the stock market.
Equity
REITs buy property that produces income or has growth
potential. Some specialize in certain types of properties,
while other are more diversified.
Mortgage
REITs invest in real estate loans and startup offerings.
Hybrid
REITs make both types of investments.
REIT share prices fluctuate in response
to market conditions, the
dividends the trust pays out, and changes in real estate values. In
the best of circumstances,
yields
can be high, since most of the trust’s annual income
is distributed to investors.
Limited partnerships
A
limited partnership
is a financial
affiliation of a general partner and a number of limited
partners that usually invests in a particular type
of income-producing property, such as shopping malls
or low-income housing.
Some limited partnerships are
public, which means you can participate by buying
shares through a brokerage firm. Others are private,
and are usually restricted to high-net-worth investors.
Real estate investing
THE PROS
Provides a hedge against
inflationEligiblility for a variety of tax deductions and
exclusionsCan increase dramatically in price in some marketsTHE
CONS
Your
principal
may be at riskVery low
liquidity,
or can be very hard to sell at the price you wantMay be overpriced in some markets, but
undervalued
in othersSubject to zoning laws and environmental issues that can significantly affect the value of your property
What makes the partnership
limited is that everyone but the general partner has limited
liability — which means they can lose only their initial
investment if the project fails.
