Real Estate is up +19.1%. Here's How to Profit.

How to Profit: a Theme for 2022

When composing my Year in Review post, I mentioned a theme I wanted to introduce this year.. “making money beyond the stock market.”

This light-hearted post is going to be my first stab at introducing that theme — so please share your feedback in the comments regarding my specific ideas, length of post, ease of implementation, cost basis, and everything in between.

Seriously, there are no wrong answers.

My goal here is to introduce other ways to build wealth outside of the stock market — without spending tens of thousands of dollars. These will likely be more passive than “side hustles,” but also more time consuming than just buying a stock within an app.

If you know someone who likes to think outside of the box, consider using the share button below. Let’s bring as many people as possible onto this journey together!

Real Estate Prices are up +19.1%

The S&P CoreLogic Case-Shiller Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate nationally. According to their nation-wide index, there was a +19.1% annual gain in October of 2021.

The hottest markets, according to the 20-City Composite, were..

1. Phoenix, AZ (+32.2%)

2. Tampa, FL (+28.1%)

3. Miami, FL (+25.7%)

If you’re asking yourself “What’s driving these prices so high?” it’s pretty simple — supply and demand.

The demand for homes is elevated given rock-bottom interest rates on mortgages, and the supply of homes for sale on the market is limited given lower-turnover and slower new construction starts (labor shortages).

High demand, low supply — high prices.

How to Profit

That’s easy! Own some real estate. Haha, easier said than done — sort of.

There are endless real estate syndication companies out there trying to ease the process of owning cash flowing real estate. Some are awesome, and some most certainly are not. They come in many forms, all requiring different amounts of capital to get started.

Let’s break down a few ways together.

• REITs (Real Estate Investment Trusts)

This option is incredibly simple, as it’s just like investing in the stock market — something you’re already familiar with.

Essentially, a REIT is a company that owns, operates, or finances income-generating real estate. Modeled after mutual funds, REITs pool the capital of numerous investors. This makes it possible for individual investors to earn dividends from real estate investments—without having to buy, manage, or finance any properties themselves.

Most REITs are publicly traded like stocks, offering incredible liquidity for investors.

Properties in a REIT portfolio may include apartment complexes, data centers, healthcare facilities, hotels, office buildings, retail centers, self-storage, timberland, warehouses, and infrastructure (in the form of fiber cables, cell towers, or energy pipelines).

If it exists as a “property,” there’s likely a REIT that has been created to provide investors cash flow from it.

The cool part?

For a REIT to be a REIT, they’re obligated to pay out 90% of all taxable income to their shareholders in the form of a cash dividend — either monthly or quarterly. This means the more money the REIT collects in rent, the more money paid to you as an investor.

A few REITs that I really like are..

1. Realty Income Corporation (ticker: O) — 4.1% yield

2. VICI Properties (ticker: VICI) — 4.8% yield

3. American Tower Corporation (ticker: AMT) — 2.0% yield

• Real Estate Robo-Advisors

This one is very simple, but also offers a lot less clarity as to what’s going on behind the scenes. Unlike REITs, which are publicly traded and therefore must legally disclose every penny in and out of the company, these robo-advisors are a bit less descriptive.

For example, you might hear from a REIT’s CEO that they intend to move into a new market or raise rents. You usually won’t have the opportunity to hear those things from a robo-advisor, because REIT’s have earnings calls just like any other publicly-traded company.

A website I find myself on a lot while looking for “How to Profit” ideas is MoneyMade. I describe them as the “Google Search” for finding digital platforms to leverage for making money beyond the stock market.

No, this isn’t some sponsored post — I genuinely love their website and have signed up for a handful of new platforms that I discovered through their website and published content.

With that being said, they’re not how I discovered my favorite real estate robo-advisor Fundrise. I found them in an online advertisement all the way back in 2018! Earlier last year, I started an experiment on their platform where I’d invest $100 per month into whatever they were doing with my money.

Since August 22, I’ve realized +18.5% returns — compared to the overall stock market’s +6% and the REIT index’s +9%. Here’s a TikTok video breaking it all down. Fundrise’s website does an incredible job of breaking down exactly where they’re investing your money and their expected returns.

They also keep you up-to-date on what properties are added to your diversified real estate portfolio. I view them as a better alternative to REITs, while also keeping the process very quick and easy.

For these reasons, Fundrise has remained my favorite way to gain real estate exposure (besides actually owning my house) since 2019.

Another sort of “robo-advisor” operating in the real estate space that I’ve signed up for but haven’t begun depositing money into yet is Groundfloor.

They’re a platform connecting investors and borrowers — allowing you to lend money to someone flipping a house for a profit. You’re signing up to contribute toward a 12-month loan to a borrower that’s usually collecting interest between 10-13%.

Here are a few examples of repaid investments facilitated on their platform, including their location and the interest rate the investor / lender received. According to their website, over $12M in interest has been earned for investors since inception.

Again, I’ve yet to jump on this one, but I may give it a whirl. If anyone has had an experience with Groundfloor — please share!

• New Construction Stocks / Furniture Companies

I’ll be keeping this bullet point relatively short as these are high-level stock ideas — something we’re generally trying to stay away from with this theme.

There will be millions of new homes built over the next 18-36 months. This number might sound like a lot, but according to several economists, it’s not nearly enough to keep up with demand.

There’s a publicly traded company that sells the raw materials to home builders called Builders FirstSource (BLDR).

Below is a blurb from my 2022 Portfolio: Mega Caps post explaining why I’m so bullish on BLDR:

On the flip side there, once someone has their home built they need to it be furnished — insert furniture companies.

Here’s a YouTube video Chris Sommers and I published explaining why recently IPO’d Arhaus Furniture (ARHS) could be an interesting idea for the coming few years.

Feedback

Short, sweet, and simple.

High level trend (real estate prices), and a few ideas on how to profit from this trend.

I’m comfortable knowing that these ideas offer enough flexibility for everyone’s wallet, as the most you’ll find yourself forking over to participate in any of these ideas is $10 (assuming fractional share investing for the publicly traded securities).

Please let me know if this is something you all would like to see more of in the comments below! And again, if you know someone who might like reading about these things — please share the Substack link below.

Reminder for Paid Subscribers

Tomorrow I will be posting Part 4 of my portfolio breakdown - the Moonshots! Given the time and energy that’s gone into breaking down 50+ stocks, this will serve as this week’s Top Stock Ideas post. We’ll start back again next week with the typical cadence.

Disclaimer: This is not financial advice or recommendation for any investment. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.