I’m planning on investing about 6k each in the 401k and Roth IRA buckets. That’s a significant chunk of income for the average person that isn’t making hundreds of thousands of dollars a year. That said, I don’t like having all of my eggs in one basket, and after looking into alternatives to the stock market one of the ones I liked best is real estate. There are a few ways you can invest in real estate:
- You can (and almost always should) buy the home you live in.
- You can buy another home and rent it out, or buy a multi-family home like a duplex and get rental income from the unit(s) you aren’t living in.
- You can invest in crowdfunded real estate.
I would suggest the first option for just about anyone. Before you even get into the stock market you should make owning your own home a priority. Real estate is a great investment over time, and even in the unlikely event that the home is worth a little less by the time you are paying off the mortgage, it’s still going to be worth the $0 that an apartment would be worth.
The second and third options are both interesting to me. To be fair I think there is more money to be made in the second option, but it also involves more work and risk, as several small landlords found out the hard way last year. Even in a normal year you run the risk of getting a bad tenant that trashes the place or has issues paying you on time. On the other hand it could net you much more money in the long run since you could essentially buy a $200k condo for $40k down, wait for the price to go up to $300k, and then sell it. This is much more appreciation than you will probably ever see from putting your money into crowdfunded real estate, but again the trade off is having to hope that the people you rent the unit to are going to pay you on time and not trash the place or cause other problems.
That’s where crowdfunded real estate comes in. The returns don’t have the potential to be as high, but there is also less risk involved. You basically invest money into some real estate with other people and after a period of time you get your money back plus interest. It doesn’t always work out that way, and there are still risks with crowdfunded real estate, but generally speaking I would argue the risk is lower. You also don’t have to have as much money to get started. Ultimately it comes down to evaluating your own situation and what you are comfortable with. In my case, after considering both options, I like this one better right now, and decided it would be a good choice for my third bucket.
After deciding I wanted to invest in crowdfunded real estate I began looking at the different options that are out there. There are actually several good companies to choose from, and I’m not going to mention them all in this article but will share that the one I think I’m going to go with is Realty Mogul.
Realty Mogul has several investment options available, however most of the require you to be an accredited investor. I’m not, so the two options I have available are the MogulREIT I option and the MogulREIT II option. The first option is focused on generating income, while the second one is focused on buying assets that are going to appreciate in value. Much like my strategy with stocks, I think it makes sense to focus on growth first so I’m planning on going with the MogulREIT II option first, and then once I hit retirement age I’d probably either move over to the MogulREIT I option or something similar. The Annualized Distribution Rate for the second option is lower (4.50% vs. 6%), but again I think it makes more sense to focus on growth for the time being.
I haven’t even started to invest in this bucket yet, but I will probably post on this topic again once I get started and share more information once it becomes available.
That’s pretty much it for the third bucket. The last bucket is going to be an individual brokerage account, and I’ll share more information on that in the next post.