I know what you're thinking.
How can you invest in real estate for just $100?
After all, one of the biggest barriers to investing in real estate is the amount of capital required.
Especially in New Zealand, even basic houses cost upwards of half a million dollars.
However, there are ways to invest in real estate just a few dollars at a time.
In fact, some of the most valuable real estate in New Zealand can be invested in this way.
Introducting the REIT
REIT stands for Real Estate Investment Trust.
An REIT exists specifically to allow people to invest in high value real estate.
Think of all the most valuable properties in your city.
Perhaps they are big office towers, or industrial sites, or shopping malls.
These properties are usually worth tens or hundreds of millions of dollars - far too expensive for individual investors.
Instead, here is what often happens:
An experienced group of property investors set up an REIT, list it on the sharemarket and raise a big bunch of money from shareholders (say, $100 million).
They take that $100 million and go property shopping.
Maybe two office towers have just gone on the market, they buy both of them for $50 million each.
Now the REIT owns two towers, and let's say all 30 storeys are leased out.
It's collecting $250k in rent each month.
Each month or each quarter, they pay this money out to the shareholders.
If you own 1% of the shares, then 1% of the payment will go to your bank account.
High Quality Real Estate
One of the main differences between buying an investment property on your own and buying shares in an REIT is your access to quality.
If we take New Zealand as an example, to buy an investment property you need at least half a million dollars.
And what does this half a million dollars get you?
It certainly won't get you one of the best houses in the neighbourhood or even on the street.
It will likely get you a one or two bedroom house, in a third or fourth tier suburb, or maybe a one bedroom city apartment.
The tenant you get will also be of a similar quality.
You might have a couple or a family with regular 9-5 jobs, maybe they pay the rent on time or maybe they don't, but their income certainly won't be as stable as the big companies that an REIT has as tenants.
Buying shares in an REIT means you are investing in literally the best properties in the country, with huge multinational corporations as your tenants.
As an example, let's take Precinct Properties (PCT) - an REIT based in New Zealand.
Here are some of the properties in their portfolio:
Madden Street, Auckland
Mason Brothers, Wynyard Quarter
Commercial Bay Mall, Downtown Auckland
PWC Tower, Downtown Auckland
HSBC Tower, Downtown Auckland
Defence House, Wellington
Mayfair House, Wellington
AON Centre, Wellington
Charles Ferguson Building, Wellington
This is literally some of the most valuable real estate in New Zealand.
As a solo investor, you could never possibly buy properties of this calibre.
Only through an REIT can you get access to this level of quality.
Other Benefits Of REITs
- There is no limit to how much or little you can invest. If you only have $10, you can invest $10. You can drip in $50 a week to build a property portfolio over time, or drop a million in there all at once in just a few seconds.
- REITs usually yield around 4% to 5%, meaning they can often be better than owning a property yourself. Even better, the rent gets paid straight into your bank account each quarter via dividend without lifting a finger (some REITs even make payments monthly).
- All the hard work involved in property investing gets done for you. You won't ever have to interview a tenant, chase up the rent, do a renovation, arrange a plumber to repair a tap, talk to a mortgage broker or banking officer, or pay a rates or insurance invoice.
- The executive teams that run these REITs are highly experienced real estate investors. By being a shareholder, you have these people working for you 24/7 trying to find the best real estate deals and find the best tenants. It's a fantastic way to leverage your time and assets.
How To Invest $100 In Your First REIT
As REITs are listed entities, you can invest in them on the sharemarket just like regular stocks.
Simply make your investment the same way you make any other share purchase on Sharesies.
Here is the Precinct Properties Sharesies page:
To buy my first $100, I simply click the "Buy" button and enter my order:
That's it! I now own $100 in real estate.
If you haven't yet started investing in shares, I recommend reading my guide How To Buy Your First $100 In Shares.
Want To Learn More?
This guide is an extract from a lesson in my course Simple Stocks.
If you would like to learn more about investing in REITs, such as what to look for in a good REIT, where to find REIT ideas, plus 60 more lessons on how to maximise your gains from stocks, Simple Stocks is the perfect place for you to start.
You can learn everything about the course here.