Can I Invest in Real Estate As a Student?

There are many different asset classes you may want to invest in while you're going to school -- including real estate. Adding real estate to your portfolio can result in more diversification than just investing in the stock market, and it can also be a hedge against inflation.

But is it possible to actually purchase real estate while you're still in school?

Students could face some challenges with real estate investing

For most students interested in real estate investing, the biggest challenge could come from the high cost of purchasing properties. Even fixer-uppers tend to cost tens of thousands of dollars, if not more. While you're still attending classes and not working full time, chances are good you won't have the money for a down payment needed to qualify for a loan to buy a property. And paying cash for a property would likely be an impossibility.

While it's sometimes possible to purchase real estate with no money down, lenders may not be willing to work with you while you're in school when you have limited income and little professional experience. Financing 100% of the purchase price of an investment property could also be a high-risk approach if you don't have a lot of income to cover the carrying costs until your investment starts paying off for you.

There are other alternatives besides buying properties

The good news is, it is entirely possible to invest in real estate without ever owning a property -- and often, that's the best way for students to get some exposure to this asset class.

There is a large number of different options to put money into real estate without directly purchasing property. Here are two examples:

• Real estate investment trusts (REITs), which were created by Congress to democratize real estate investing by allowing people to invest in entities that hold either a portfolio of mortgage loans or a portfolio of commercial real estate.
• Exchange-traded funds or mutual funds, which invest in many REITs and/or many real estate stocks. These funds could be actively managed, with fund managers specifically choosing a mix of real estate investments. Or they could be passively managed and designed to track financial indexes measuring the performance of the real estate market.

Each of these different kinds of investments has its own advantages and disadvantages. Also, some funds and non-publicly traded REITs have minimum investment requirements. But, in general, it is possible to find options that require very little money to get started. In fact, with some brokers allowing you to purchase fractional shares of ETFs, it may be possible to get started investing in real estate with just a few dollars.

This can be great for students who don't have a fortune to spend but who feel like the real estate sector is the place they want to put some of their cash. If you're a student, consider researching these options to decide if any make sense for you. Like with any other investment, though, be sure to carefully consider the risks as well as the potential upside and take the time to think about how real estate fits into your overall quest to build a diversified portfolio.

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