Investing in real estate seems like a distant dream for many owing to high inflation rates and the unpredictable housing market. However, you can still invest in real estate despite being low on funds. We have listed the best possible options that you can choose from when it comes to investing in real estate with little or no money.
Citigroup economist, Veronica Clark, also predicted a 25-basis-point increase in January and March 2023. As a result, purchasing physical property or direct ownership may not be the best option for real estate investors. Based on our observation, there are better alternatives such as investing in real estate investment trusts (REITs) that can provide passive income.
REITs and REITs EFTs
REITs are companies that own and manage a portfolio of income-generating properties, such as apartment buildings, office buildings, and shopping centers. By investing in a REIT, you can own a share of these properties without having to buy them outright.
You can purchase shares of a REIT on the stock market just like you would with any other publicly traded company. This means you don’t need a large amount of money to get started and you can easily buy and sell your shares.
To help you understand, the two most common forms of REITs are Equity REITs and Mortgage REITs. Equity REITs generate income from rental payments, while mortgage REITs generate income from interest payments on mortgages.
Mortgage REITs generate income by collecting interest on the mortgages they own or invest in. These mortgages are typically packaged into MBS (Mortgage backed securities), which are sold to investors. When you invest in a mortgage REIT, you’re essentially investing in a portfolio of mortgages that are being serviced by the REIT.
In Canada, one type of MBS that is commonly used is Canada Mortgage Bonds (CMB). These are issued by the Canada Mortgage and Housing Corporation (CMHC) and are backed by the Canadian government. CMBs offer investors a low-risk way to invest in the Canadian mortgage market, as they are accredited and credited by the Canadian government.
It is obligatory on us to reveal to you that:
REITs are required by law to distribute at least 90% of their taxable income to shareholders in the form of dividends!
By opting for REITs, you can potentially earn a steady stream of income from your investment.
Another smart alternative to buying a property if you are low on funds is REIT ETFs (Exchange Traded Funds) that offer a number of advantages over traditional REITs.
Basic differences between REITs and ETFs that you need to know
Both REITs and REIT ETFs offer exposure to the real estate market, but they differ in terms of cost, flexibility, and tax implications. While REITs offer higher potential yields and a more passive investment option, REIT ETFs are typically low-cost, offer greater flexibility, and can be a more tax-efficient investment option.
One of the main benefits of ETFs is that they are typically low-cost, making them a more accessible option for you.
With ETFs, you can easily buy and sell shares as needed, giving you more control over your investments. In contrast, owning shares in a traditional REIT can be a more passive investment, with limited options for buying and selling shares.
If you are someone who gets intimidated with independent decision making or
If you want to diversify their investment portfolio and gain exposure to the real estate market without having to deal with the headaches of property management, then a passive fractional ownership may be a good option for you.
Passive Fractional Ownership
Passive fractional ownership is a relatively new concept in Canada that allows investors to own a fraction of a property without having to take on the responsibilities of property management. With passive fractional ownership, you can invest in a share of a property with other investors, and a professional management company will take care of all the day-to-day management tasks.
One principal benefit of passive fractional ownership is that it can conveniently be liquidated for funds, compared to other investments. This can be a big advantage over traditional real estate investing, where properties can be difficult to sell quickly.
Before committing to the option, you must note that returns on investments with passive fractional ownership are impacted by a variety of factors, such as changes in interest rates, economic downturns, and property market conditions. It’s important to do your research and understand the risks before deciding to invest in any of the real estate investment options available.
