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The Clark-Approved Way To Invest in Real Estate

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Investing in real estate is a hot topic in 2022, where home prices are booming. However, the decision to “invest in real estate” is still in its infancy. There are many options, from low risk to high risk, from low to high effort. It is important to choose the one that suits you.

Money expert Clark Howard, a longtime real estate investor, said: Most people who want to invest in real estate should focus on REIT index funds or ETFs..

Why does Clark prefer the average investor? And what are some of the other common ways to invest in real estate???

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Clark’s investment philosophy and real estate

Clark’s general investment principles are well-established, popular, and, well, boring.

The final adjective is a proud adjective because Clark emphasizes limiting prices, minimizing risk, diversifying, and taking a long-term approach.

If you have to choose only one of those ideas that will have the greatest impact on your wealth over the decades, it may be the fee you pay.

Fees present a tricky trap for individual investors. When you decide where and how to invest your money, you can think about paying them later. Understanding the proper commission rates for different types of investments requires some knowledge. We may also ignore revenue (or potential revenue) at the expense of ignoring or minimizing fees.

There are lots of YouTube ads from smart marketers, claiming to tell you how much money they made in real estate and for a fee. (Don’t worry if they really succeeded. It’s hard to believe they all want to reveal the secret.)

People who spend most of their lives online are particularly struck by ads that promote exciting and profitable real estate opportunities through crowdfunding sites.

All its messages increase the chances of enriching it. It also describes the utility of taking pricing and costs into account when considering potential ROIs.

Clark’s investment advice outlook

Clark’s investment pillar has at least one caveat. He usually gives money advice to a large faceless audience via podcasts. So he offers advice for the simplest solution that will help most people.

Clark admits that they are not always the best choice for everyone, especially the wealthy. Those who are outliers in terms of risk tolerance and are already accustomed to managing complex portfolios.

But without knowing your specific goals, family situation, assets, liabilities, income and other factors, Clark says there is a clear winner for most people about the best way to invest in real estate. ..

Why Clark Recommends REIT Index Funds and ETFs for Real Estate Investing

For most people, Clark sees REIT index funds or real estate-centric ETFs as the way to go when it comes to real estate investment.

“There are options you can enter [that are] “Ultra-low cost, diversified into small pieces of real estate of all kinds and free to enter and exit,” Clark says.

REIT is an abbreviation for real estate investment trust. REITs have some similarities to mutual funds. Since it is traded like public stock, it is highly liquid. The diversity and focus within each REIT is different — some of the most popular REITs, like index funds, are highly diversified and fairly low cost.

There is Some nuances and rules about REITs.. But the point is that you have a wealth of low-cost, liquid, diverse real estate REITs that you can invest in for a small amount of money.

real estate ETFOr exchange-traded funds show essentially the same characteristics.

These real estate investment options aren’t as sexy as the “get rich in real estate quickly” scheme. The control is weakened. It is unlikely that you will generate huge profits and suddenly multiply your investment.

Also, some REITs or ETF options are concentrated in a very small number of real estate or narrow types of real estate, even though there are many good options that match the characteristics that Clark preaches.

Results are not guaranteed.But according to Nariet Listed REIT IndexS & P 500’s annual revenue for the 20 years to December 2019 exceeded 11.6%, compared to 6.1%.

Potential issues with other types of real estate investment

The disadvantages encountered with other types of real estate investments depend on the options.

And there are many options. Maybe you are expanding yourself to buy the best homes you can live in, reach out to real estate crowdfunding sites and invest in short-term rental properties or commercial buildings To buy.

In any case, here are some of the problems you may face if you deviate from Clark’s best solution for the masses:

  • High price: As an example, some of the crowdfunding marketing I’ve referred to earlier focus on the potential for “profitable” returns. However, these sites tend to “fill leads” to borrow from newspaper terminology. These companies exist to make a profit from your investment. That’s why they spend so much money on attractive, emotion-based advertising. They often hide the fees they charge deep into their terms of service — or embed them in the text of the hard-to-find section of the FAQ on the website.
  • Unfluid investment: Regain the fluid value of your home, whether you give your money to a third party to invest for you, buy a home, or build your own commercial real estate That is often impossible, at least without paying the price to burn money.
  • Lack of diversity: Want to own real estate? Average home prices in the U.S. It was about $ 400,000 as of February. Would you like to buy in a nice neighborhood in a big city? You can expect to spend much more. If your net worth is less than a few million dollars, a single property can make up the majority of your portfolio. It creates risk, at least in the form of opportunity cost.
  • Uncertain legal framework: Recently, certain types of short-term rentals have been banned in local neighborhoods and cities. For Airbnb Holding a banned political party.. Please be aware that the legal situation may change if you purchase a property that you plan to use as a short-term rental.
  • Unattractive market prices and mortgage rates: House prices reached exorbitant levels in 2022. Clark does not anticipate any serious crash of any kind due to supply and demand dynamics, but advised some potential buyers to consider waiting for the market to soften. Thanks to the Federal Reserve rate hike Average 30-year fixed mortgage It rose from 2.65% in January 2021 to 5.81% just a few weeks ago.
  • Large initial and ongoing costs: Closing costs, real estate fees, down payments, inspections, permits, building materials, property taxes, interest on loans, maintenance, premiums, utilities, and Homeowner Association membership fees are many that can be incurred when involved. It’s just a small part of the hidden costs of. With real estate.
  • Management ability: If you run a short-term rental business or rent a commercial building, you need to manage your property. This includes securing payments from tenants, troubleshooting maintenance issues, cleaning places between lessors, and potentially selling your real estate.

Final idea

It is important to make investment decisions based on substance and logic, not as an emotional reaction to marketing tactics or the dream of getting rich quickly.

This also applies to real estate investment.

Clark’s real estate investment advice for most people is to focus on finding low-cost, diverse REITs or ETFs.

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