Investing in real estate with a low deposit – READ THIS before you start!

Investing in real estate

When you tell your friends that you invest in real estate, they will most likely ask you which properties you have bought or sold in the last few weeks. However, investing in real estate is not just buying and selling real estate. In the article below you will find all the important information about investing in real estate. It turns out that you can also invest in real estate via the stock exchange.

There are roughly two ways to invest in real estate. Investing in real estate is popular with a large number of investors. Physically owning properties requires a larger capital. Can you not invest in real estate if you do not have this capital? No. There is also another option to invest in real estate.

What exactly is investing in real estate?

First you will have to explain to your friends what the different forms of investing in real estate are. There are actually two categories. First of all, you can of course actually trade in bricks. You buy and sell houses, offices, apartments and so on. In addition, you can invest in real estate via the stock exchange.

The first form is known to the general public. People who are in real estate buy bricks (collective name for all possible real estate) and then earn money with it. This can be done by renting out the property or by first renovating the property and then renting or selling it. To be able to do this on a larger scale, but even when buying a single property, a lot of capital is required. As a result, there is of course also a lot to be earned if you buy and sell at the right time or simply renovate the properties very well.

The second option ultimately has little to do with stones. You buy and sell via the stock exchange. We will discuss how that works below.

Expand your portfolio with real estate

There are three ways to invest in real estate via the market. This can be done via real estate funds, which in jargon are also called Real Estate Investment Trusts, or REITs. You can also invest in real estate Exchange Traded Funds (ETFs) and shares of companies that are active in real estate. We will discuss these three options below.

Real Estate Funds: REITs

A real estate fund, also known as a Real Estate Investment Trust (REIT), is a fund that derives its income from the fact that it owns, develops and produces real estate. When you invest in such a fund, you invest in the purchase, development and production of real estate without owning it yourself. As is often the case, a shareholder often receives voting rights in the fund. This allows you to help determine what the fund does. Your say naturally depends on the number of shares you own.

You may have noticed that these funds own and develop real estate, but do not sell it. This is correct, because the funds do not normally do that. The income generated from the rental is partly distributed to the investors. Almost everything that is real estate is included in these types of funds. Think of all types of buildings such as offices and hotels, but also houses and data centers.

The real estate market is usually quite stable . For example, rents are stable income and therefore the income stream of these funds is also stable. This in turn ensures that an investment in these types of funds is reasonably safe. Of course, developments can always occur due to, for example, current events that can shake up the market, but that is inherent to investing.

Real Estate Exchange Traded Funds (ETFs)

An Exchange Traded Fund (ETF) is often called a tracker. This is a product that ‘tracks’, or follows, a commodity, bond, index or a combination of products. An ETF tracks the price of the products in the fund and in this case, products in real estate. For example, a real estate ETF often follows a REIT.

ETFs in real estate, but also in general, are sold and bought on the stock exchange as shares. This makes ETFs very flexible. They are usually managed passively and therefore cost less than a fund itself. Finally, the ETF has the possibility to participate in specific projects of funds.

Real estate shares

You can also invest in real estate by buying and selling real estate shares. There are an unprecedented number of possibilities for types of real estate shares that you can trade. An example is investing in shares of companies that do not qualify as a fund, but own real estate.

Another option is to invest in companies that own and manage real estate, but that do not have this as their core business.

What are the risks

Finally, it is always good to have some idea of the risks . One factor that you should always keep a close eye on when investing in real estate is the interest rate. For example, interest rate increases usually do not have a good impact on the profit of real estate funds. You should also be aware that you run a currency risk if you invest in a real estate fund in a foreign currency such as the dollar.

Ultimately, investing is never without risks. Always make sure that you are well informed about how the market works and that you have a good plan: a clear investment plan that you stick to.

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Investing in real estate with a low deposit – READ THIS before you start!