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 researching, selecting, negotiating, financing and managing real estate. Here is a simple investment guide to real estate profits, how to invest without hassle. Or, one might say, how to speculate in a simple way.
Imagine April 2009, and you’re willing to bet real estate prices are low and won’t go much lower. This basic investing guide will show you how to invest and get in on the action, with little time or effort required, whenever you think you see an opportunity in real estate.
First, if you don’t have a brokerage account, open one with a major discount stock brokerage firm. Then, after depositing some money, you are ready to take action. You are going to buy shares of real estate ETFs. They are simply index funds whose stock price tracks the stocks of companies in the commercial real estate sector.
One of the biggest advantages of real estate investing is financial leverage. For example, some people buy real estate with very little money saved. They borrow a lot. With ETFs, you can gain leverage without personally borrowing anything.
When you invest (or speculate) in these ETFs, which 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. This 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 bit cautious, you can buy shares in a real estate ETF with the ticker symbol (IYR). It does not use financial leverage. At the end of 2007-beginning of 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 uses leverage. In late 2007 and early 2008, it also sold for around $70 a share. In March 2009, just over a year later, it sold for $2.50. Leverage works both ways, magnifying both losses and gains. Let’s talk about URE, which I personally bought at $4.25, $2.65, and $1.85.
URE gave investors a lot of action. Those who paid $70 for it had lost their shirts just over a year later. The upside potential could be a rocket ride, if markets and property prices turn around. To invest, it works like this…
If you buy 1000 shares at $2, it will cost you around $10 in commissions to complete the single trade. You will have $2000 invested. If the ERU were to return to $70, you could sell at a cost of around $10, and then you would have $70,000. Of course, you can sell at any time, at any price.
Are there any guarantees that you will make money? This simple investor’s guide wants to make one thing clear. When investing or speculating, forget about profit guarantees, unless the government backs the investment.