With credible speculation that we’re in the midst of a tech bubble bursting in 2023, tech industry professionals are looking to protect their wealth by diversifying their investments.
If you’ve been investing heavily in the tech sector, you’ve likely noticed a dip in the value of your portfolio over the past year and a half. As of December 2022, the S&P 500 Technology sector was down 28% for the year.
So where can you invest your money for stable return potential while the tech industry faces a period of volatility? The answer is simple: real estate.
Real estate is a critical component of any high-net-worth investing strategy. Unlike the tech sector, real estate is hyper-local, meaning that there is always strong return potential if you know where to look. One regional market can be booming while another is slowing. And even within one local market, one real estate investment strategy can produce impressive returns while another barely breaks even.
So, in this article, we’re exploring the real estate investment strategies that tech industry professionals are using to grow their wealth and outperform investment return averages. We’ll explain why tech pros are investing in real estate, and we’ll give you the seven ways tech experts are investing in real estate today.
This is how tech industry professionals invest in real estate.
Why Tech Professionals Are Investing in Real Estate
Here’s why real estate is such an attractive investment for tech professionals:
- Passive income potential. Unlike your tech stocks, which may or may not offer dividends, residential rentals can provide reliable cash flow.
- Appreciation. Because real estate values increase over time, your net worth grows when you hold long-term real estate investments.
- Low risk. Despite some limited short-term volatility, real estate is a low-risk investment with a track record of long-term stability.
- Tax breaks. The tax benefits of investing in real estate are particularly valuable for high-income earners who can save money by claiming real estate-based deductions on their annual property tax returns.
- Flexible investment options. With so many different ways to invest in real estate, there is an option for everyone. Whether you’re looking for short-term gains or long-term recurring income, passive returns or a hands-on project, low investment minimums or ways to invest $100k in real estate, you can find a real estate investment to suit your preferences.
7 Ways Tech Industry Professionals Invests in Real Estate
Here are seven of the best real estate investment options for tech pros.
1. Primary Residences and Vacation Homes
For many of us, buying a home is our first real estate investment. Purchasing a home allows you to build equity rather than wasting money on rent each month. And, with a clever house-hacking strategy, you could even generate rental income from your primary residence.
You might also consider investing in a vacation home. Like your primary residence, a vacation home would appreciate over time. Unlike your primary residence, your vacation home could be vacant for much of the year, creating an opportunity to rent the property out as a short-term vacation rental.
2. Direct Ownership of Residential Rentals
Investing in rental properties is one of the best ways to become a millionaire through real estate. Rental properties give you long-term appreciation, ongoing rental income, and annual tax breaks, all in one investment vehicle.
3. Real Estate Investment Trusts (REITs)
Real estate investment trusts (REITs) are companies that invest in income-generating real estate. You can buy shares in a REIT and receive a portion of the company’s earnings in the form of quarterly dividends.
This provides an opportunity for purely passive investment; once your shares are purchased, you simply review their performance periodically to make sure you’re satisfied. The downside is that you don’t have any control over how the REIT operated. It might add or drop properties from the portfolio, without your knowledge or consent, for example. In fact, with some REITs, it can be difficult to even tell which properties you have a stake in.
4. Other Real Estate-Based Securities
REITs aren’t the only option for investing in real estate without buying property. You could also consider real estate-based securities like mutual funds, index funds, and ETFs. All three of these securities are essentially packages of stocks and/or bonds bundled together. So if you own a share in a mutual fund, index fund, or ETF, you might own partial stocks in dozens of different real estate companies.
Real estate-based securities are very similar to one another, but there are distinguishing characteristics to be aware of:
- Mutual funds are actively managed, meaning that the stocks included in the fund are hand-selected by a fund manager.
- Index funds passively follow a market index (like the S&P 500, for example). This typically means lower fees since there is no fund manager to pay.
- ETFs are mutual funds that can be traded at real-time prices at any time while the stock market is open. This is different from traditional mutual funds, which are traded at the end of the day, based on the day’s closing price.
You might find real estate securities that offer dividends, but many investors opt to focus on growth in the share price. If you buy low and sell high, you can substantially increase your net worth.
5. Joint Ventures
Joint ventures are a traditional method of investing in high-value real estate deals by pooling funds with other investors.
While wealthy investors have been using joint ventures to increase their net worth for centuries, there are a few obvious challenges of joint ventures. First, you need to have a network of investors who share your goals and preferences for investment properties. Then you need to figure out the legal ownership structure and day-to-day-management of the asset so that all partners are satisfied with the arrangement.
To overcome these challenges, more of today’s investors are turning to crowdfunding, which we’ll discuss next.
6. Real Estate Crowdfunding
Real estate crowdfunding is the more modern version of a joint venture, in which multiple investors pool funds via an online platform to finance a real estate project. With crowdfunding, you don’t need to have any prior relationships with the other investors. And, because the project sponsor will make the necessary decisions for the development and management of the property, your investment is entirely passive.
7. Real Estate Syndication
Real estate syndication is very similar to real estate crowdfunding. As with crowdfunding, syndication pools funds from multiple investors via an online platform to give investors access to unique deals that they might not be able to fund alone. And, like with crowdfunding, syndication projects are managed by a sponsor, who will make the decisions and manage the project on behalf of the investors.
There are a few differences between syndication and crowdfunding to be aware of. For example, syndication offers a more stable ownership structure than crowdfunding, with all investors becoming partners in the LLC that owns the property. Furthermore, syndication is more likely to offer equity investment, in which investors own a share of the underlying real estate. This is different from the “debt investment” offered by many crowdfunded projects, in which investors act more like lenders than owners.
Challenges Faced by Tech Industry Pros When Investing in Real Estate
Here are some of the most common challenges you may face as a tech industry professional investing in real estate.
- Your local market may be overpriced. Tech hubs like San Francisco, Silicon Valley, Seattle, and New York have notoriously high property values. The best cities to invest in real estatemight be too far from home for you to properly manage yourself.
- You might not be interested in active management of your investment portfolio. Managing rental properties can be particularly time-consuming. While some investors enjoy handling maintenance issues and resident relations, others much prefer a more passive investment.
- You might not have the experience to maximize return potential. Spotting a good real estate investment and maximizing the profitability of that property are developed skills. There are several common mistakes to avoid when investing in real estate, and a lack of experience increases your chances of a costly mistake.
- You might not have the funds to finance a deal on your own. Purchasing property, financing the construction or renovation, and funding the ongoing maintenance can require substantial capital. Many investors find it difficult to cover the upfront and ongoing costs of investment property ownership.
Luckily, many of these challenges can be overcome by investing in a real estate syndication project rather than investing alone. Here’s how the pros do it…
Invest Like the Pros with Gatsby Investment
Gatsby Investment is a real estate syndication company that specializes in making deals with high-return potential available to investors.
With syndication, you get to:
- Invest in the fastest-growing real estate markets from anywhere.
- Invest passively while the project sponsor takes care of the details for you.
- Leverage the experience of real estate industry experts to minimize risk while maximizing return potential.
- Pool your funds with those from other investors to access deals that would otherwise be out of reach.
As a leader in the space, Gatsby Investment has developed proven strategies for profitable real estate deals. Our track record speaks for itself!
If you’re looking to diversify your traditional stock market investment portfolio by expanding into real estate with a low-risk, high-reward investment model, consider the real estate investment optionsoffered by Gatsby Investment.