I’m a business major and the vice president of my university’s student investment club. Basically, we’re part of the business school, and we have a pot of money that we invest as an educational tool. We usually only do stocks and bonds, but I (personally) am interested in real estate investing. I’m starting to do research, and it looks really promising, but with our investment club, I would have to get other members on board if we invest in real estate. We’re not about to become builder-developers, obviously, but how do we find a way in? And what can I do to persuade other members to get on board with the plan?
Real estate investing is a particular field, and it means a lot more than buying a home and hoping to flip it at a profit, or buying a rental property and scraping off a little income every year. Much of real estate investment involves the ownership and maintenance of large commercial properties, such as malls, office parks, and hotels. For aspiring investors like you and your club, this type of real estate investing is probably more interesting. But how does it work, how do you get involved, and how can you make the argument to your friends that they need to get on board?
Real estate investing can mean lots of different things, as we discussed, but your group should probably look in to investing in a way that doesn’t involve development and reselling. The U.S. Securities and Exchange Commission (SEC) has an informative website that introduces Real Estate Investment Trusts. If you own shares of an REIT, you can collect some of the income generated by that REITs real estate. If the REIT invests in a mall, for example, they pass along some of the mall’s rental income to you in the form of a dividend. REITs are also heavily regulated, so unlike investing in a start-up (for example), they tend to be pretty low-risk. Furthermore, just like a stock, you can trade shares of REITs. Lastly, REITs are a global phenomenon — Australian real estate investment trusts exist just as American ones do.
According to The Balance, investing in international REITs are great ways to diversify your holdings. However, owning part of an REIT means that you are investing in actual, physical buildings, and risks are associated with that. The buildings could, for example, burn down, though REITs invest in several different buildings to minimize that risk. If the economy of the area where the REIT owns property goes belly-up, your investment won’t generate as much passive income as it would somewhere where the market is hot. If the housing or mortgage market has a major problem, they can be even riskier.
To get your club on board with you, you need to think like an entrepreneur pitching an opportunity to a group of savvy investors. You need to know your subject well. You’ll need to study up and prepare. However, you should also take a moment to think about what the needs of the club are right now and how and where you think investing in real estate will help them. What is their need, and how will REIT investment fill that need? Is there a need for steady income and dividends? Are you looking for a way to hedge your bets? Depending on how you answer these questions, you can then do more in-depth research into which type of real estate investment strategy works for all of you. Like any great investor, you need to anticipate the moves of the market, whether a real estate trust or a college club.