Investing in Real Estate the Easy Way
Real estate investing can take many forms. If you work more than 50 hours a week, you probably don’t want to spend your free time searching, selecting, negotiating, financing, and managing real estate. Here is a simple investment guide to real estate earnings, how to invest without the hassle. Or, one might say, how to speculate the easy way.
Imagine April 2009, and you’re willing to bet that home prices are low and won’t go much lower. This basic investing guide will show you how to invest and take action, with little time or effort required, every time you think you see a real estate opportunity.
First, if you don’t have a brokerage account, open one with a major discount stock brokerage firm. Then, after you’ve deposited some money, you’re ready for action. You will buy shares of stocks in real estate ETFs. These are simply index funds whose share price tracks the shares of companies in the commercial real estate business.
One of the biggest advantages of investing in real estate is financial leverage. For example, some people buy real estate with very little money. They borrow a lot. With ETFs you can gain financial leverage without personally borrowing anything.
When you invest (or speculate) in these ETFs that trade like any other stock, you simply buy and sell on your computer or over the phone in your brokerage account. A transaction can cost as little as $10. That is your total cost to buy or sell this real estate investment.
Here is an example of how to invest, how it works. If you want to be a little cautious, you can buy shares in a real estate ETF with the stock symbol (IYR). It does not use financial leverage. In late 2007 and early 2008, it sold for $70 a share. In March 2009 it could be purchased for $25.
If you want more action, you can opt for a real estate ETF with the symbol (URE), which employs leverage. In late 2007 and early 2008 it also sold for about $70 a share. In March 2009, just over a year later, it sold for $2.50. Leverage works both ways, both to increase losses and profits. Let’s talk about URE, which I personally bought at $4.25, $2.65 and $1.85.
URE gave investors plenty of action. Those who paid $70 for it had lost the jersey just over a year later. The upside potential could be a heady ride, if markets and real estate prices turn around. In terms of how to invest, it works like this…
If you buy 1000 shares at $2, it will cost you about $10 in commissions to simplify the transaction. You will have $2000 invested. If ERU were to go back to $70, you could sell at a cost of about $10 and then you would have $70,000. Of course, you can sell at any time, at any price.
Is there any guarantee that you will make money? This simple guide for investors wants to make one thing very clear. When investing or speculating, forget about earnings guarantees, unless the government backs the investment.