There are an endless variety of ways to invest in real estate, from taking out a home mortgage to building a property empire that spans the country. While the latter is probably out of reach for most of us, there’s no shortage of other options. Here are five strategies for adding real estate exposure to your investments.

1. Real Estate Investment Trusts (REITs)

If you’d like to invest in real estate immediately, with as little money as possible, take a look at real estate investment trusts (REITs).

These public companies raise funds by selling shares of stock and issuing bonds, and use the proceeds to purchase and lease out real estate assets like shopping malls, office buildings, apartment buildings and warehouses. REITs are required to pay out nearly all of their after-tax profits to their investors as dividends.

Real estate investment trusts take the fuss out of owning real estate. Management handles all of the ownership and rental logistics—you just sit back and collect dividends, which are frequently higher than many stock-based investments.

You can buy and sell shares of REIT stock in the market via a brokerage account, like any other public company. This makes REITs about the most liquid real estate investment available. In addition, you can buy shares of exchange traded funds (ETFs) that own shares of many REITs. New investors without a lot of money can invest in fractional shares of REIT ETFs via investing apps like Stash, M1 Finance and Robinhood.

2. Crowdfunding Real Estate Platforms

Investors who’d prefer to take a more hands-on approach should check out crowdfunding real estate investing platforms. Many of these online platforms let you invest in specific real estate development projects, rather than large, generic portfolios of properties.

Real estate crowdfunding platforms pool money from multiple investors to fund development projects. They generally require investors to commit to real estate investments for longer periods of time, five years or more in many cases. You may be able to access some of your money before then, but it’ll be up to the platform’s discretion and you may face early withdrawal penalties.

The platforms may charge fees. Be sure to look out for any fees or additional management costs, which can diminish your returns.

Keep in mind that you may not be eligible to participate in all online real estate platforms. Most require minimum investments, ranging from $500 to $25,000 or more. Some require you to be an accredited investor—meaning that you own $1 million in assets other than your primary residence or you make more than $200,000 a year.

Fundrise and Crowdstreet are two popular platforms that offer a range of different options from real estate funds to individual real estate projects.

3. Invest in Your Own Home

Primary residences are the most common way most people invest in real estate. You take out a mortgage, make your monthly payments and gradually build ownership in your home. With luck and strong demand in your local market, you can cash in on the equity when you sell your home.

While investing in your own home can help you build wealth over the long term, average annual returns are less than you might expect. From 1994 to 2019, homes only increased in value about 3.9% annually, according to a report from industry analyst Black Knight.

While there are areas of the country where home appreciation is much higher, on average the house you live in is unlikely to dramatically grow in value, especially once you figure in costs like maintenance and repairs, insurance, property taxes and the interest you pay on your mortgage.

Other real estate investments, like REITs, have seen average annual returns as high as 11.28%, according to Nareit—even a vanilla S&P 500 ETF has provided average annual returns of about 10% long term.

This isn’t to say you should never buy a home or think of it as an investment. Government support for the mortgage market generally, in addition to programs that support first-time homebuyers, help you buy a home at a much lower price than would be possible with other real estate purchases.

4. Invest in Rental Properties

If you’re looking to make a major commitment to investing in real estate, consider purchasing rental properties. Rentals can offer steady cash flow as well as the possibility of appreciation over time, but they are one of the most labor-intensive methods of real estate investing.

There are two main ways to make money with rental properties:

• Long-term rentals. These properties are generally designed to be rented for at least a year and in theory provide a steady monthly cash flow, though this depends on your tenants being reliable. You might buy a multi-unit property or a single-family home that you rent to others.
• Short-term rentals. These properties cater to rotating tenants whose stays might be as short as one night, like Airbnb. You might list your entire home or apartment when you’re away, or you could invest in a separate property meant only for short-term rentals.

While investing in real estate with rental properties offers greater profit potential, it also requires a great deal of effort on your part. You need to find and vet tenants, pay for ongoing maintenance, take care of repairs and deal with any other problems that arise.

You can reduce some of these headaches by hiring a property management company, but this will cut into your returns. When it comes to financing rental properties, the resources and low interest rates available to primary residences may not be available. This can make buying rental property more expensive.

5. Invest in Real Estate by Flipping Properties

You don’t have to buy rental properties to maximize your profit from real estate investing. Buying and flipping properties is a common strategy, although like rental properties, flipping takes lots of work. It means renovating homes and learning to identify up-and-coming neighborhoods that will let you sell your purchases at a premium.

If your home flipping strategy involves renovation and construction, it means taking on extra risk and high out-of-pocket costs. Long story short, it’s not as easy as it may look on HGTV. You’ll need building permits for renovations, and remodeling costs may run higher than you expect, especially if you hire contractors or outsource other work.

To minimize the amount of effort in flipping properties, look for homes that don’t need major renovations in up-and-coming areas. This can be even more lucrative if you rent the property while waiting for home values to rise. Just remember, the neighborhood you think will become trendy might never catch on, leaving you with a property it’s hard to recoup your investment on.

Should You Invest in Real Estate?

Real estate investing can offer robust long-term returns that are not entirely correlated with the stock market. But costs and risks can run high when you invest in physical property, which may make REITs the best choice for those who have limited money to invest or who aren’t looking for a primary residence.

If you do decide to purchase rentals properties or start flipping homes, make sure you’re fully aware of the risks you’re taking on and have a plan on how you will earn back your investment. Remember: Real estate can be very illiquid in the short term, which means it can be a big financial commitment. If you have any questions about getting started with real estate investing, talk to a financial advisor.

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The fallout from the shuttering of Silicon Valley Bank — the second-largest bank collapse in U.S. history — continued Monday, dragging down international banking stocks.

European banking stocks were down 6.3% at 12:40 p.m. London time on Monday, after closing 4% lower on Friday, as U.S. financial regulators shut down SVB and took control of its deposits. All major U.S. indexes closed at least 4% lower on the week Friday amid the SVB panic, while regulators shut down Signature Bank — one of the cryptocurrency industry’s main lenders — on Sunday, citing systemic risks.

U.S. federal regulators said that all deposits will be made whole, in a relief to many depositors. But the SVB crisis is far from an isolated incident, and its roots lie in a bigger systemic problem, many investors and analysts say.

“With regard to who’s to blame here, I think that the greed and avarice that has long been present in Silicon Valley has come home to roost,” Keith Fitz-Gerald, a trader and principal of the Fitz-Gerald Group, told CNBC’s Capital Connection on Monday.

“We had the Federal Board of Reserve change from fractional reserves to no reserves, and that let banks like SVB go out and start buying assets instead of simply loaning money,” he said. “My contention is banking should be boring, a lot like watching paint dry — and any time it’s not, you’ve got a problem. Which is unfortunately what happened.”

SVB — the 16th biggest bank in the U.S. at the start of last week — had been operational for 40 years and was considered a reliable source of funding for tech startups and venture capital firms. The California-based commercial lender was a subsidiary of SVB Financial Group, and it was Silicon Valley’s largest bank by deposits.

SVB Financial Group’s holdings — assets such as U.S. Treasuries and government-backed mortgage securities viewed as safe — were hit by the Fed’s aggressive interest rate hikes, and their value dropped dramatically.

The company’s tipping point came Wednesday, when SVB announced it had sold $21 billion worth of its securities at a roughly $1.8 billion loss and said it needed to raise $2.25 billion to meet clients’ withdrawal needs and fund new lending. That news sent its stock price plunging and triggered a panic-induced wave of withdrawals from VCs and other depositors. Within a day, SVB stock had tanked 60% and led to a loss of more than $80 billion in bank shares globally.

SVB employees received their annual bonuses Friday just hours before regulators seized the failing bank, according to people with knowledge of the payments. And the bank’s CEO, Greg Becker, sold $3.6 million in company shares on Feb. 27, less than two weeks before SVB revealed the massive losses that prompted its collapse, according to regulatory filings.

Regulators asleep at the wheel?

Many market analysts say that regulators have been asleep at the wheel. SVB’s strategy — relying heavily on corporate deposits as opposed to retail and holding a large proportion of assets in loans and securities — actually made it significantly riskier than many other banks.

Some argue that the bank’s downfall was due to its leaders’ greed for yield: its holdings were disproportionately exposed to long-term interest rates, which are at a 15-year high in an effort to bring down inflation. The increased rates hit the value of SVB’s securities, which subsequently damaged depositors’ confidence.

“SVB was in a league of its own: a high level of loans plus securities as a percentage of deposits, and very low reliance on stickier retail deposits as a share of total deposits,” Michael Cembalest, J.P. Morgan’s chairman of market and investment strategy, wrote in a weekend note to clients.

The lender, he said, “carved out a distinct and riskier niche than other banks, setting itself up for large potential capital shortfalls in case of rising interest rates, deposit outflows and forced asset sales.”

This is more the product of a faulty system than the bank itself, Fitz-Gerald argued. Concerning federal and state regulators, he said, “I would submit not only are they complicit, they had a hand in designing this mess…. SVB did what they needed to do, arguably, within the structure of rules that are the problem. So, to me, it’s the system that’s broken, or at least needs to be seriously reviewed here.”

‘Stupid risks’

Legendary investor Michael Burry similarly called out what he described as greed and “stupid risks” in the sector.

“2000, 2008, 2023, it is always the same,” Burry, who founded the hedge fund Scion Asset Management and gained fame for successfully betting against the subprime mortgage market in 2008, was quoted as saying on Sunday.

“People full of hubris and greed take stupid risks, and fail. Money is then printed. Because it works so well.”

Fitz-Gerald doesn’t see SVB’s collapse and the crisis in the tech and crypto markets as mirroring 2008. Additionally, he sees a lower contagion risk due to federal regulators’ emergency plan, announced Sunday by the Treasury Department, the Federal Reserve and the the Federal Deposit Insurance Corporation, to guarantee depositors’ funds.

The contagion risk “has been substantially reduced with the FDIC, the Fed and the US Treasury Department stepping into the fray. So you know, again, this collective sigh of relief, I think that global contagion is off the table,” he said.

“But,” he added, “we simply don’t know where the counterparty risk lies right now. So in contrast to 2008, the parallel really is 1929. They have got to stop this and they’ve got to stop it now. We won’t know until the U.S. session opens.”

“I am personally flabbergasted that the system is what it is today and that this stuff was allowed to happen,” he said. “Where were the regulators? Where were the auditors? I think there’s going to be very serious questions asked about how the rating systems work. Why were these banks allowed to take on assets when they should have been backing their deposits?” Fitz-Gerald asked.

“That is a fundamental issue that has got to come to the forefront now. We can’t ignore it and kick the can down the road. I think it’s an embarrassment to the US Federal Reserve. I think it’s an embarrassment to the banking regulators, frankly.”

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As inflation continues to soar and the stock market experiences its worst first half of the year since 1970, economists and financial experts worry that a recession might not only be likely, but inevitable. Technically, the country is in a recession when gross domestic product, the value of all goods and services produced during a specific period, falls during two quarters back-to-back. In the first three months of 2022, the US GDP dropped by 1.4%. The National Bureau of Economic Research, which makes the official call about a recession, meets later this month.

There’s also concern that the central bank — in an aggressive effort to tame inflation by slowing down the economy — could just be forcing the economy into a painful recession. Historically, to lower inflated consumer prices, the Federal Reserve raises the federal funds rate, which makes borrowing money more expensive. But this year’s three rate hikes, including the most recent, which was the largest in nearly three decades, haven’t made a dent in inflation. It sits at 8.6%, more than four times higher than “normal.”

Federal Reserve Chairman Jerome Powell acknowledged the risk of recession during a European Central Bank forum on Wednesday. But he also noted, “I wouldn’t agree that it’s the biggest risk to the economy. The bigger mistake to make … would be to fail to restore price stability.”

As we brace for the storm with recession fears ramping up, more of us are thinking about finances and employment. My So Money podcast audience sent in a number of questions related to recessions about how best to prepare, save, invest and make smart money moves in these uncertain times. Here’s a bit of guidance to help navigate this difficult financial period.

First, what might we see in a recession?

It’s always helpful to go back and review recession outcomes so that we can manage our expectations. While every recession varies in terms of length, severity and consequences, we tend to see more layoffs and an uptick in unemployment during economic downturns. Accessing the market for credit may also become harder and banks could be slower to lend, because they’re worried about default rates. 

As the Federal Reserve continues to raise rates to try to clamp down on inflation, we’ll see an even greater increase in borrowing costs — for mortgages, car loans and business loans, for example. So, even if you qualify for a loan or credit card, the interest rate will be higher than it was in the prior year, making it harder for households to borrow or pay off debt. We’re already seeing this in the housing market, where the average rate on a 30-year fixed mortgage was recently approaching nearly 6%, the highest level since 2009.

During recessions, as rates go up and inflation cools, prices on goods and services fall and our personal savings rates could increase, but that all depends on the labor market and wages. We may also see an uptick in entrepreneurship, as we saw in 2009 with the Great Recession, as the newly unemployed often seek ways to turn a small business idea into reality.

Should I expect layoffs?

With the unemployment rate sitting at 3.6%, the job market may appear to be, at least right now, the only stable part of the economy. But that’s likely to be temporary, as companies battling with the current financial headwinds — including inflation, rising interest rates and weakening consumer demand — have already begun to announce layoffs. According to Layoffs.fyi, a website that tracks job losses at tech startups, there were close to 37,000 layoffs from startups in the second quarter of 2022.

In the Great Recession, unemployment peaked at 10%, and it took an average of eight to nine months for those out of work to secure a new job. So now could be the time to review your emergency fund if you think there’s a shortfall. If you won’t be able to cover a minimum of six to nine months’ worth of expenses, which is hard for most people, see if you can accelerate savings by cutting back on spending or generating extra money. It’s also a good time to make sure your resume is up to date and to establish contact with influential individuals in your professional and personal network. If you are laid off, make sure to apply for unemployment benefits right away and secure your health insurance. 

If you’re self-employed and worried about a possible downturn in your industry or a loss of clients, explore new revenue streams. Aim to bulk up your cash reserves as well. Again, if previous recessions taught us anything, it’s that having cash unlocks choices and leads to more control in a challenging time.

Should I expect the interest rates on my debt or loan to go up?

As the Federal Reserve continues to raise interest rates to try to curb inflation, adjustable interest rates are set to increase — ratcheting up the APRs of credit cards and loans, and making monthly payments more expensive. Ask your lenders and card issuers about low-interest credit options. See if you can refinance or consolidate debts to a single fixed-rate loan.

In past recessions, some financial institutions were hesitant to lend as often as they did in “normal” times. This can be troubling if your business relies on credit to expand, or if you need a mortgage to buy a house. It’s time to pay close attention to your credit score, which is a huge factor in a bank’s decision. The higher your score, the better your chances of qualifying and getting the best rates. 

Should I stop investing in my 401(k)?

With stocks in a downward spiral, many want to know how a recession could impact their long-term investments. Should you stop investing? The short answer is no. At least, not if you can help it. Avoid panicking and cashing out just because you can’t stomach the volatility or watch the down arrows during a bear market.

My advice is to avoid making knee-jerk reactions. This may be a good time to review your investments to be sure that you’re well-diversified. If you suddenly experience a change in your appetite for risk for whatever reason, talk it through with a financial expert to determine if your portfolio needs adjusting. Some online robo-advisor platforms offer client services and can provide guidance.

Historically, it pays to stick with the market. Investors who cashed out their 401(k)s in the Great Recession missed out on a rebound. Despite the recent downtick, the S&P 500 has risen nearly 150% since its lows of 2009, adjusted for inflation.

The one caveat is if you desperately need the money you have in the stock market to pay for an emergency expense like a medical bill, and there’s no other way to afford it. In that case, you may want to look into 401(k) loan options. If you decide to borrow against your retirement account, commit to paying it back as soon as possible.

Should I wait to buy a home?

With mortgage rates on the rise and housing prices not cooling nearly fast enough, owning could be more expensive than renting right now. A report from the John Burns Real Estate Consulting firm looked at the cost to own versus renting across the US in April and found that owning costs $839 a month more than renting. That’s nearly $200 greater than at any point since the year 2000.

Fixed rates on 30-year mortgages have practically doubled since last spring, which has helped slow down offers and cool housing prices — but competition among buyers is still stiff due to historically low inventory. All-cash offers and bidding wars continue in plenty of markets. If you’ve been shopping for a home in recent months or the past year to no avail, you may feel exhausted and defeated.

Don’t be hard on yourself. You’re not doing anything wrong if you have yet to offer the top bid. While it’s true that a fixed-rate mortgage can offer you more predictability and budget stability, as long as inflation continues to outpace wages, there could be some bright sides to renting right now. For one, you’re not buying a home in a bubble market that some economists are saying is soon to burst. If you have to unload the home in a year or two — during a possible recession — you may risk selling at a loss.

Secondly, renting allows you to hold onto the cash you would have spent on a down payment and closing costs, and will help you stay more liquid during a time of great uncertainty. This allows you to pivot more quickly and secure your finances in a downturn. Remember: Cash is power.

My final note is that it’s important to remember that recessions are a normal part of the economic cycle. Long-term financial plans will always experience some declining periods. Since World War II, the US has had about a dozen recessions and they typically end after a year or sooner. By contrast (and to give you some better news), periods of expansion and growth are more frequent and longer lasting.

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Inflation is here and getting worse. The stats paint the picture and speak for themselves. The U.S. has hit the highest inflation levels in 40 years. The U.S. consumer price index increased 7%, which is the largest single-year rise since 1981. Wholesale prices spiked the fastest ever at 9.6% in November. The average wage growth was 4.7% in the U.S., notably less than the rate of inflation.

Higher wages help fuel inflation because companies need to raise prices for goods and services in order to cover the increased costs. It’s a cycle in which wages rise but costs rise even faster. If you’ve been to the grocery store or the gas pump, you can definitely feel the pinch. Oil has risen to the highest level in seven years. Should you be alarmed? It all depends on your situation.

What Is Inflation?

Inflation occurs when broad prices for goods and services rise, while purchasing power simultaneously falls over a given period of time. It is the rate of increase in prices for consumers measured over a period of a year. Thus, the consumer price index (CPI) is used to gauge inflation. The CPI measures inflation as experienced by consumers in their daily living expenses. The CPI is the rate of inflation.

CPI Data

The consumer price index (CPI) report is released monthly and measures the average change of prices paid by urban consumers for a market-based basket of products and services. The U.S. Bureau of Labor Statistics (BLS) collects the data through two surveys, including prices for commodities and services and prices for rent (housing). Every month, about 94,000 prices are crunched to compute commodities and services indexes. 

Rising PPI Can Drive Higher CPI

The producer prices index (PPI) is how much businesses pay. A higher PPI results in businesses passing on the price hikes to the consumers, which can push up the CPI. Wages need to rise to enable consumers to continue paying higher prices, which enables producers to pay higher prices as the circle continues, resulting in higher inflation.

But higher PPI doesn’t always result in inflation. If prices get too high, then consumers step back from spending, which builds up supply and causes prices to fall back down. Currently, wages are not rising as much as prices are rising. This will likely result in consumer spending cutbacks. This was reflected in the December 2021 retail sales report which indicated a 1.9% decrease from November 2021, however, still up 16.9% from December 2020. 

This decrease could be a sign that consumers are feeling the pinch and pulling back on their spending to some degree. Keep in mind, the retail spending report is mostly composed of consumer discretionary (nonessential) products, which tend to rise during economic growth periods as disposable income rises. These include items like apparel, restaurants, leisure, cars and parts, and general merchandise. Whereas consumer staples are essential products used on a daily basis like food, toothpaste and other personal products. However, the pace of rising wages still falls short of CPI growth, thus rising prices and diminishing buying power continue to drive inflation higher.

What Causes Inflation?

There are generally three types of inflation defined by the underlying cause. Rising demand and falling supply cause prices to rise (demand-pull inflation). However, rising production costs can also result in higher prices (cost-push inflation). Rising labor costs and wages can also cause prices to rise (built-in inflation). Inflation can take years to spawn, and while it has exploded to the upside upon the reopening phase post-pandemic, the seeds may have been planted years ago with the Federal Reserve monetary policy resulting in cheap money aplenty. 

Compounding Problems With Covid-19

The pandemic accelerated inflation but also distorted it. The mandated pandemic-related lockdowns were temporary, which fueled pent-up demand that would outstrip supply upon the economic reopening. Like stretching a rubber band to its extreme, holding and then letting go, as it snaps back furiously. The government-imposed lockdowns caused supply shortages to develop, as businesses and factories substantially reduced output to prevent oversupply. Chip fab factories had already scaled down production before the pandemic hit, not anticipating the demand that quickly increased.

The slowdown caused a supply glut, which then turned into a massive supply shortage when the reopenings and economic restarts occurred. Global supply chains felt immense pressure and disruption as economies attempted to get back on track. A shortage of supply and labor coupled with rising raw materials and logistics costs triggered prices to surge. The federal stimulus and unemployment programs made it difficult to get workforces back online, as many were better off collecting benefits rather than returning to work. This caused employers to have to pay more to find talent, creating rising wage pressures in a tightening labor market.

Omicron Pressures

The latest surge of the omicron variant of Covid-19 has caused further disruptions in the supply chain and logistics as workers take absence and quarantine. U.S. airlines have canceled thousands of flights due to worker shortages from Covid-19. Omicron is the fastest spreading variant, and while vaccination and boosters can lessen the severity to avoid hospitalizations, it doesn’t completely prevent the spread of it. The good news is that the side effects are not as severe as earlier strains, and the rate of hospitalizations has significantly decreased for those who are vaccinated.

The January 2022 Federal Open Market Committee (FOMC) meeting repeated the December meeting notes in that inflation has gone too far above its 2% target. It looks like it’s time to end quantitative easing in March and raise interest rates amid a strong labor market. The way I see it, consumers should be relieved that inflation should fall back. Investors should be concerned that financial assets like stocks, collectibles and real estate will also deflate in value.

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