Q. I know I should have some of my investments in real estate. Am I better off buying an investment property that I can rent out or am I better off with a mutual fund that invests in real estate? Real estate prices have risen so I’m thinking I can still catch that wave.
A. You’re right that most financial planners will recommend you hold a certain percentage of your portfolio in alternative investments like real estate.
And yes, you could hold stocks or mutual funds that focus on the sector, or you could become a landlord.
There are several advantages to each strategy, said Kenneth Van Leeuwen, a certified financial planner with Van Leeuwen & Company in Princeton.
He said investing in a real estate fund is a fairly simple process depending on what type of real estate and the fund structure.
“The investment in a fund can be made quicker than procuring your own real estate in most cases and does not come with any of the day-to-day management of a physical property,” he said. “One item to note is that not all funds invest in the same type of real estate and may have limited liquidity, so be sure to choose the fund that meets your personal objectives.”
Buying an investment property may be more financially rewarding because you can benefit from both rent payments and appreciation of the property.
But you’ll be responsible for the management, from finding tenants to making needed repairs.
“In the end, the type of property you own and how hands-on you want to be with the investment matters,” Van Leeuwen said.
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Karin Price Mueller writes the Bamboozled column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for NJMoneyHelp.com’s weekly e-newsletter.