Buying a land or house and lot for investment can cause your diversification to go down if a large portion of your money goes to it unless you are already very rich and have other larger investments. If all your investment is in a single property then your risk becomes very high since it’s tied to only one unit. The risk even goes higher if you have a mortgage loan for the property since you are investing borrowed money.
There is a way to invest in several units of properties without having to put a large amount of money. This is called Real Estate Investment Trust. This kind of investment is issued by companies that own several properties that they rent out such as apartments, commercial and industrial spaces. Since they own many properties then the investment has some diversification and is not tied to a single property.
You can invest in REIT by buying its shares in the stock market and they normally are not very expensive so you can just use a small portion of your money to invest in it. Buying REIT gives you the opportunity to invest in real estate without having to put a large amount of your money in it. This gives you the option to further diversify your money in other kind of investment such as index fund, fixed income or bonds or even stocks and manage your risk based on your tolerance. In my next note, I will discuss the similarity and differences of REIT to stocks.