With elevated interest rates and persistently high home prices, American homebuyers have felt firsthand the squeeze on their budgets.
According to real estate mogul Grant Cardone, the necessity for substantially longer mortgage terms is on the horizon.
“The savior of America will not be lower prices, it will be longer mortgages,” he said in a recent TikTok video. “In your lifetime, you will see mortgages go from 30 to 40, 50 and maybe even 60 years. You could, if you live long enough, see a 100-year mortgage in America.”
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Despite this, Cardone expresses skepticism about the role of mortgages in achieving true home ownership.
“A mortgage is just a fancy way to say you own some sh-t that you don’t own,” he explained.
Looking ahead, Cardone anticipates a significant shift in lifestyle and consumption patterns. He sees a future where renting becomes the norm across various aspects of life.
“America will become a renter nation,” he predicted. “You will rent your cars, you will rent where you live, you might even rent your clothes in the future.”
But what if you're still keen on investing in real estate, considering its reputation as a hedge against inflation, a source of passive income and a way to diversify your portfolio?
Well, despite the current economic challenges, there are indeed strategies to invest in real estate that don't involve taking on substantial debt. Here’s a look at three of them.
Invest in publicly traded REITs
Real estate investment trusts, or REITs, are companies that own income-producing real estate like apartment buildings, shopping centers and office towers.
You can think of a REIT as a giant landlord: It owns a large number of properties, collects rent from tenants, and passes that rent to shareholders in the form of regular dividend payments.
To qualify as a REIT, a company must pay out at least 90% of its taxable income to shareholders as dividends each year. In exchange, REITs pay little to no income tax at the corporate level.
It’s easy to invest in REITs because many are publicly traded.
Unlike buying a house — where transactions can take weeks and even months to close — you can buy or sell shares in a REIT anytime you want throughout the trading day. That makes them one of the most liquid real estate investment options available.
Also, your investment can be as little or as large as you want — be it $100 or $100,000. While buying a house usually requires a hefty down payment and a mortgage, you can invest in a REIT with as little as the price of a single share and brokerage fees.
Invest on a crowdfunding platform
Crowdfunding has become a buzzword in recent years. It refers to the practice of funding a project by raising small amounts of money from a large number of people.
These days, many crowdfunding investing platforms allow you to own a percentage of physical real estate — from rental properties and commercial buildings to parcels of land.
Read more: Worried about the economy? Here are the best shock-proof assets for your portfolio. (They’re all outside of the stock market.)
Because of the greater risks involved in real estate crowdfunding, some platforms are targeted at accredited investors, sometimes with minimum investments that can reach into the tens of thousands of dollars. To be an accredited investor, you need to have a net worth of over $1 million or an earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the past two years.
If you are not an accredited investor, many platforms let you invest small sums if you like — even $100.
Such platforms make real estate investing more accessible to the general public by simplifying the process and lowering the barriers to entry.
Crowdfunding platforms and sponsors of real estate deals usually charge investors some fees.
Invest in ETFs
Picking the right REIT or crowdfunded deal requires plenty of due diligence on your part. If you are looking for an easier, more diversified way to invest in real estate, consider exchange-traded funds.
You can think of an ETF as a portfolio of stocks. And as the name suggests, ETFs trade on major exchanges, making them convenient to buy and sell.
Investors use ETFs to gain access to a diversified portfolio. You don’t need to worry about which stocks to buy and sell. Some ETFs passively track an index, while others are actively managed. They all charge a fee — referred to as the management expense ratio — in exchange for managing the fund.
The Vanguard Real Estate ETF (VNQ), for example, provides investors with broad exposure to U.S. REITs. The fund holds 160 stocks and has total net assets of $54 billion. Over the past 10 years, VNQ has delivered an average annual return of 6.4%. Its management expense ratio is 0.12%.
You can also check out the Real Estate Select Sector SPDR Fund (XLRE), which aims to replicate the real estate sector of the S&P 500 Index. It currently has 31 holdings and has an expense ratio of 0.10%. Since the fund’s inception in October 2015, it has delivered an average annual return of 6.2%.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
