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Published On: Thu, Jan 26th, 2017

REITs Are Picking up Speed with Private Investors Looking to Enter the Market

For years, one of the safest investments was seen as real estate because there is only so much land, and once it’s developed, that’s all there is. Of course, buildings can be built, knocked down and built again an infinite number of times, but unless you build up there is an end to how much you can build out. That’s a fact.

So then, although the market rises and falls like the sun in the sky or the tides at the beach, it will still be there forever and always. A great investment. However, in real estate you need money to make money which means only a handful of investors could really cash in on it. Now that there is an investment platform called ‘crowdfunding,’ that rule no longer applies, and that’s why REITs are picking up speed by the day.

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While it may sound like a commercial sponsoring a B rated movie, there is nothing B rated about the way in which recent legislation made it possible for REITs to exist in the first place. The acronym stands for Real Estate Investment Trust which, before Title III and Regulation A+, didn’t exist. Oh, there was crowdfunding to invest in other type of industries, but due to the Securities Act of 933, a company looking to sell its securities had to register with the Securities and Exchange Commission, SEC.

Okay, so you don’t really ‘need’ to know all the legal jargon such as what type of person or entity is considered a ‘registered investor,’ and how there are now exemptions that allow unregistered investors to offer you a legitimate piece of the commercial real estate pie. What you need to know is why REITs are picking up speed and how you can invest for your own piece of the action.

photo 401K 2012/2013 via Flickr

You Can Start with a Very Small Amount of Investment Capital

Just a few years ago, if you wanted to invest in real estate, you’d need to invest larger amounts of money with a registered investor or huge amounts of money when you actually bought the piece of real estate through a broker. In either case, you couldn’t start with an investment often as low as $1,000 and actually ‘think’ you owned any portion of a commercial property like a shopping mall or commercial warehouse. It would be insane just to think you could get in on the action with that little bit of money.

While there are funds out there that diversify their portfolio with sporadic bits of real estate, few, if any, invest solely in real estate. Now there are crowdfunded REITs that allow you to invest a very small bit of money and along with others in the fund, you own a small bit of the pie. It’s a very good way for a new investor to begin investing in real estate.

As Crowdfunding Grows, Momentum Is Building

As recently as the last decade, no one knew what crowdfunding was and so it took some amount of time for sites like Go Fund Me to attract attention. Now, everyone and their brother is setting up a Go Fund Me page asking for money for everything from an operation for their child to a new hi tech startup. Crowdfunding is gaining momentum and becoming much better known. Unfortunately, that can be both good and bad.

The advice you should be given here is to consider the source! On crowdfunding sites where anyone and everyone can ask for money you need to be careful of scammers. If you are looking to invest in anything of value, such as real estate, it’s imperative that you know the source. Who is asking and why? Are they reputable and do they have references and customer feedback? This is vital going forward.

Back to All that Legal Jargon

Now then, let’s get back to that definition of an accredited investor. This is where Uncle Sam has your six. Although an REIT does not need to have an accredited investor (remember that’s someone or some entity registered with the SEC) it does need to meet the exemption criteria in at least one of the acceptable ways. This is ‘almost’ the same as being an accredited investor because it meets very specific criteria as set out by the government.

No, you might feel a bit apprehensive investing in a crowdfunding scheme on some sites like Go Fund Me, but when it comes to an REIT, you can feel much safer knowing there are specific regulations and stipulations the fund must adhere to. Want to own a bit of real estate, however small? Start with an REIT and use your earnings to work your way up. Who knows, one day you might be President too!

Author: Joao Pedro

photo/ Public domain pictures via Pixabay

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