How Much to Invest in Real Estate?

When most people think of investing in real estate, they imagine becoming a
landlord, buying and managing single-family rental properties. But that isn’t the only
way to get involved in the industry. In fact, new business platforms are making it
possible to invest in commercial real estate, even for people with smaller budgets.
It’s hard to put an exact number on how much you need to start investing in real
estate, but it can help to consider four types of investment costs.

One of the biggest barriers to getting into real estate is the cost. This is particularly
true when you’re first starting out, when the capital needed to purchase a property
can be substantial. Fortunately, there are ways to get around this barrier, including
the use of crowdfunding. This type of financing allows investors to pool their money
together in order to buy a property. This method of investment reduces the initial
capital required to make a purchase, but it also increases the amount of risk that is
assumed by each investor.

Another way to get into real estate without spending a lot of money is by investing
in a real estate investment trust. This is an organization that holds and manages
real estate, and it’s a great option for those who want to diversify their portfolio but
don’t have the time or expertise to manage a property themselves. The price tag for
this type of investment can vary, but it is typically lower than the upfront costs of
purchasing a single-family home or an apartment building.

Other investments that don’t involve owning a property directly include commercial
mortgage-backed securities (CMBS), private equity, venture capital and art and
collectibles. But how much of your portfolio you choose to allocate to these types of
investments depends on a variety of factors, including your overall risk tolerance,
your current savings and retirement goals, and whether you’re planning for short or
long-term investing horizons.
For most investors, however, it makes sense to include real estate in a welldiversified portfolio. In fact, some institutional investors — including the Yale
Endowment and Blackstone — recommend that investors dedicate up to 20% of their portfolios to real estate. For more info

Whether you choose to invest in single-family or commercial real estate, there are
many benefits of owning this type of asset. For example, the income generated by
rent can help offset the cost of owning and operating a property, and it provides a
hedge against inflation by passing on inflationary pressures to tenants in the form of
higher rent. In addition, owning real estate provides significant tax incentives like
depreciation and mortgage interest deductions.

To determine how much of your portfolio you should devote to real estate, it’s
important to understand the market in which you intend to invest. Effective real
estate investors develop in-depth knowledge of their chosen markets, narrowing
down a geographic region and focusing on specific residential or commercial
property types. They also stay abreast of trends that could affect the value of their
investments, such as rising interest rates and changes in consumer spending habits.