Land is a real asset that can generate real income. Unlike shares and securities, land is limited in supply. And demand for houses, apartments, and commercial buildings will continue going up as long as the population keeps growing.
All investors should therefore have some exposure to the real estate market – whether through farmland, a vacation rental property, real estate investment trusts, or some other avenue. There are lots of options out there. The key is to pick an investment that is suitable for your financial means and level of expertise.
If you’ve never owned a rental property before, then borrowing a ton of money to buy some high-end condo unit you don’t actually intend to live in is rash speculation. You don’t need to use leverage to invest in real estate. You don’t even need to own title to any property directly.
Income-Generating Real Estate that Trades Like a Stock
The easiest way to invest in real estate is through real estate investment trusts (REITs). REITs are companies that own apartment buildings, shopping malls, and other properties that generate rental income. REITs trade like stocks on the exchanges.
There are also mutual funds and exchange-traded funds that hold REITs. For example, the SPDR Global Real Estate (RWO) ETF gives you exposure to both U.S. and foreign REITs.
Is now a good time to buy REITs? Valuations are a bit on the expensive side historically. But in comparison to the S&P 500, real estate trusts (especially foreign REITs) look relatively attractive. They yield more than typical blue-chip dividend stocks.
REITs crashed along with other financial asset classes in 2008, so they are sensitive to gyrations in the banking system and equity markets. Real estate investors shouldn’t rely exclusively on REITs.
Other instruments available to investors include companies that own productive farmland. Gladstone Land Corporation (LAND) and Farmland Partners (FPI) are two U.S.-based vehicles for investing in arms. Cresud Inc. (CRESY) is an Argentina-based company that operates farms and cattle ranches in South America.
It’s Never Too Late to Become a Landlord
People will always need places to live, so there are always opportunities in income-producing residential property. Mortgage rates remain low and rents are on the rise in most parts of the country, meaning astute investors can find rental properties that will generate positive cash flow.
Being a landlord is often a great fit for retirees. It requires more effort and responsibility than owning shares of a stock or bars of gold, to be sure. But it’s a lot less demanding than a job or most types of businesses. You can even hire a property manager to handle maintenance and tenant issues.
The main risk in owning an investment home or condominium is not being able to find a good tenant who is willing to pay what you’re asking in rent. So look for a property that either already has a tenant or is in an area that is popular with renters.
Yes, You Can Own Property within a Retirement Account
Here’s a little-known secret that only a few savvy investors know when it comes to IRAs: You can invest in real estate in your traditional or Roth IRA. Not just in the form of equities. But actual properties, including farmland – even if it’s located outside of the United States.
If you’re willing to take the path less traveled, do some grunt work, and perhaps get your hands dirty, consider this alternative investing method. You can invest your traditional or Roth IRA funds in a multitude of agriculturerelated investments, such as:
• Farmland or grassland.
• Beef or dairy cattle.
• Mortgages on agricultural property.
• Profitable ag-related small businesses.
In order to unlock your IRA and invest it in property, you need to convert to what’s known as a Self-Directed IRA. To do that, you need to set it up with a Self-Directed IRA trustee. Banks and brokerages typically won’t allow you to liberate your IRA. They want your IRA investments to remain limited to the financial products they sell!
Some Self-Directed IRA trustees specialize in precious metals. Others allow a broader array of tangible assets which may include real estate or farms or livestock.
The following is a list of companies that may be able to serve as a Self-Directed IRA trustee for your particular investment objectives. We don’t here endorse any of them. You are responsible for asking the right questions and conducting your own due diligence before doing business with any of these firms:
• PENSCO Trust Company (866-818-4472;
• Equity Trust Company (888-382-4727;
• Sunwest Trust, Inc. (800-642-7167 ;
• IRA Financial Group (888-472-0646;
No, Your Own Home Isn’t a Good Investment…
We tend to associate buying a house with acquiring an asset. We tend to associate acquiring assets with making investments. But for most people, their home (and the property taxes and other bills it generates) is their biggest expense – not their best investment.
…Unless It Generates Cash Flow
A home is a good investment only when it produces income. Professional real estate investors don’t hold onto homes that don’t generate cash flow. They avoid them or flip out of them.
A home that you’ve built up substantial equity in can be used to generate cash. You can tap into your home’s value in the form of home equity lines of credit, reverse mortgages (for those over 62), and the like.
For many people, their home serves as their primary form of retirement savings. According to the Consumer Financial Protection Bureau, 41% of Americans nearing retirement have virtually no retirement savings. But 74% own homes with substantial equity.
The problem is that home equity is an asset that can be quickly depleted when tapped. A home that generates investment income, by contrast, represents a sustainable flow of cash that doesn’t eat away at your equity.
To convert your home into a good investment, consider how it can generate income. Would you consider listing it as a vacation rental during times of the year when you’re away? Can you convert a basement or guest house into an apartment? What about converting a garage into seasonal storage space? Do you have rural land that could be marketed to hunters or campers?
Think creatively! When it comes to real estate, there are endless ways to turn it into a stream of income for you.