How to Invest in Real Estate Without Buying a House

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By Matt SF
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Chicago skyline--don't forget the best pizza ever!

Ever wanted to invest in a mall? How about a skyscraper in your favorite city? It's simple, and you can it with less than you think.

Difficulty: Moderate

Instructions

Things You'll Need:

Adequate funding for the transaction
Broker

Step 1

Buying real estate does not solely apply to buying a home and signing documents for an hour. It can be done in less than 5 minutes if you know how. Identify the type of real estate you are interested in--say, retail spaces (shopping malls), vacation properties (hotels) or even professional buildings (offices). If you are like most investors, you want to make the most money, right?
Step 2

Do your own research on a financial website, like MSN Money or Google Finance (two of my personal favorites). If you don't know how, don't panic! Consult a financial planner or just ask for guidance in the comment section. Identify the top performers over the past 5 years. Real estate in 2007 has been a tumultuous up and down period, so base your results on a longer timeline. Go back 10 to 20 years if you so choose.

For example, I have chosen the Prologis Corporation under the ticker symbol "PLD" that trades on the New York Stock Exchange, just like any other regular stock. They own about 2,500 industrial-associated properties all around the world.
Step 3

Look up the stock symbol to see company's current price. In my example, the closing price for PLD on January 17, 2008, is $53.20.
Step 4

Calculate how much money you will need to buy 100 shares and make your purchase. For PLD:

100 shares x $53.20/share = $5,320

To purchase 100 shares will require $5,320 plus a broker's commission, which can be anywhere from $4 for online brokers to hundreds depending upon your broker, so choose wisely.
Step 5

Know what your are buying. PLD is a Real Estate Investment Trust, or REIT. REITs are companies that own and operate real estate properties that range from skyscrapers to farmland, which can generate income just like a second home at the beach to rent out during the summer to earn extra cash.
Step 6

Calculate your compensation. In my example, PLD pays a dividend every 3 months as long as you hold onto your shares. For example, the payout each 3 months for 1 share of PLD for 2008 will be $0.5175 per share, and I bought 100 shares.

100 shares x $0.5175 = $51.75

But it pays this every 3 months, or 4 times each year. So:

4 payouts x $51.75/payout = $207
Step 7

Keep in mind your total value. Remember, I still own the actual shares of PLD as well, so I also need to calculate this value.

In PLD's case for 2008, let's pretend to fast-forward. Say it goes up 10 percent from the purchase price, which equates to $58.52 per share. So not only do I get a nice little dividend paycheck of $207, but my total share price is now worth $5,852 for a profit of $532. In total, I made a pretax profit of $739.

You're not Donald Trump, but you're on your way.

Comments

tyronet said

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on 3/15/2009 Not very good advice. PLD is now $5/share, a 90% reduction from the Jan 18, 2008 price. If you had invested directly in real estate instead you would have lost a lot less.