It may seem like $10,000 is a sizable sum to get started in real estate, but in the traditional real estate market, it won't take you very far. Given the median home sale price is $408,100 today, a 20% down payment, which is the required amount for an investment loan, would be over $81,000, $71,000 more than you have to invest.
Thankfully, there's a much more affordable way to invest in real estate. If you're looking for a play-by-play on exactly how to invest $10K in real estate today, here's how to do it.
Invest in REITs
REITs, or real estate investment trusts, give investors access to high-quality real estate portfolios in nearly every real estate industry imaginable, all of which are owned and managed by a professional third-party company. These unique types of real estate stocks have to follow strict rules to benefit from certain tax advantages of the REIT structure. For example, 95% of income must be earned from real estate or real estate-related securities like mortgages, and REITs must pay 90% of taxable income in the form of dividends, which can equate to reliable, higher-earning dividend returns for investors.
REITs outperformed the S&P 500 in 2021 by over 10% and have historically outperformed the S&P 500 over the past 20 years, making them an attractive long-term play for investing in real estate. Since many REITs are publicly traded, your $10,000 can go a long way across a few key stocks.
Diversify across industries
Diversification is key for any investment portfolio. Real estate, like other industries, isn't immune to economic challenges, and what is impacting one industry may not hinder another. To mitigate your risk exposure, it's important to educate yourself on the risks and opportunities within each industry and diversify your $10,000 across a variety of real estate sectors. I suggest investing $2,000 into the most promising stocks among five niche sectors.
Self-storage has consistently been the highest-performing sector among all REITs for nearly three decades. In 2021, it produced a 79% return on investment and has maintained an 18% return on investment for the past 27 years. Coupled with the industry's resilience to recessions, it's a must-buy if you're investing in real estate. Public Storage (PSA -1.16%) is a popular choice among self-storage REITs, as its the largest self-storage REIT with a super high-quality global portfolio. Public Storage rapidly expanded its portfolio in 2021 adding 232 facilities for a record $5.1 billion, which should set it up for a strong 2022 and beyond.
Residential and industrial real estate are giving self-storage a run for its money as demand soars for rental housing and industrial space. The rise of e-commerce, supply chain challenges, and lack of housing all have spurred unparalleled growth in these industries, yielding a 62% return for industrial REITs and a 58% return for residential REITs in 2021.
Residential operators like Mid-America Apartment Communities (MAA 0.80%) or Camden Property Trust (CPT -0.04%), which both have notable exposure in the Sun Belt, are seeing increased lease rates, rental growth, and fewer vacancies than peers in higher-density gateway markets, making them standout buys in today's market.
Investment in data centers and communications infrastructure are also smart moves. Our reliance on technology is only growing, which is driving long-term demand for these REITs' services. American Tower (AMT -1.43%) gives investors exposure to both of these industries. First and foremost a communications infrastructure REIT, and a huge one at that, American Tower has expanded into the data center business after acquiring CoreSite Realty Corporation. This company has been one of the oldest and most reliable REITs for dividend growth and total returns and continues to be a safe but high returning investment.
Lastly, industrial real estate is another worthwhile industry to consider. As e-commerce sales continue to grow the need for industrial space will grow with it. Industrial space is at a record low vacancy rate across the country, which has led to record rental growth. Prologis (PLD -2.88%) is the largest industrial REIT by market capitalization and one of the top-performing REITs within its sector, although there are several high-quality industrial REITs to choose from.
Buy and hold for the long term
Investing in real estate, as with any stock investment, should be for the long haul. While REITs have created superior returns over the years, not every year is a winner. Having patience and being able to ride through any market turbulence means you're setting yourself up for long-term success and well on your way to making your $10,000 grow into much more.