How To Build A Real Estate Investment Portfolio

When it comes to investment options, real estate is a market that’s ripe for the picking — in 2020 it was estimated that residential real estate alone was worth a staggering $7.1 trillion. Clearly, there’s a lot of money to be made in real estate, so it’s only natural that you might want to get onto the property ladder and start earning.

Actual ownership of property is the most obvious and popular method of real estate investment. But this isn’t the only way to build a real estate investment portfolio — there are more options available to you than you might realize. 

Buy-to-let

The classic route to a passive income stream from real estate is to buy a property and then rent it out or list it as an Airbnb. As well as residential property, you can also invest in land or commercial property such as office buildings as lucrative sources of rental income.

This comes with certain responsibilities as a landlord, such as being liable for any necessary maintenance work, but in return, you’ll earn a reliable stream of (relatively) passive income. There are many pros and cons to renting out a property or running an Airbnb, be sure to have a strategy in place before you invest. 

However, recent developments have made this a less profitable option than it once was. Thanks to the COVID-19 pandemic, average rental prices have seen their biggest drop in 16 years, putting a huge dent in property owners’ incomes as a result. That said, due to the ongoing uncertainty caused by the pandemic you might want to consider risk-off alternative investments, which is why it’s key to actively manage your portfolio.

Real estate ETFs

ETFs, or exchange-traded funds, are a parcel of investment securities such as shares or bonds which are traded as a single unit. Different ETFs focus on different market sectors and indexes; as the name suggests, Real estate ETFs focus on an index of companies that own or operate real estate. These can include real estate investment trusts, holding companies, or property groups.

Real Estate ETFs provide a great way of investing in property without the effort of researching and viewing properties, and since you aren’t buying an entire property, you can make an initial investment at a much lower cost. If you choose an active ETF, it will be managed by a team of professional fund managers, giving you an even more stable and rewarding investment.

Crowdfunded property investment

If you lack the necessary cash to buy property on your own, you could consider teaming up with other investors instead. Thanks to new crowdfunded investment services, you don’t even have to know your fellow investors to be successful. Property investment crowdfunding refers to services such as BrickX and CrowdfundUp, which allow users to pool their resources towards an investment.

BrickX offers a large portfolio of already-bought properties and allows users to buy “bricks” (essentially shares) in them. After you’ve bought bricks in a property, you’ll then receive rental income proportionate to your share, and if brick prices rise, you can sell them back for a profit.

CrowdfundUP, meanwhile, provides a market of property projects that users can invest in. On completion of the project, investors will receive a return on their investment. As with any crowdfunding, however, be aware of the risks associated with a given project before putting your money into it.

Real estate investment trusts

Also known as REITs, real estate investment trusts work on a similar principle to crowdfunded property investment, although handled more traditionally as stock options on the stock exchange. REITs use investors’ money to buy and operate a portfolio of commercial property, rental property, and/or land. 

In return for providing the capital needed to expand the REIT’s portfolio, investors receive a share of the portfolio’s rental income proportional to the shares they hold in the trust. This makes them a great long-term investment, providing rental income without the stress of a landlord’s responsibilities, and can help to diversify your existing stock portfolio.

Thanks to the range of investment options in real estate, it’s easier than ever to get a foothold in the property market and start making a profit. As with any investment though, there are risks involved, so you should do your research thoroughly before putting your money on the table.