Using Stock Options To Gain Exposure To Real Estate

Not everyone has enough cash or borrowing capacity to buy an investment property.

Those who do have issues with collecting rent, broken toilets, damaged properties etc. etc.

Luckily, using options, there is a way to gain exposure to the real estate market without having to put up any cash (or at least very little).

Don’t worry, I'm not some crazy real estate spruiker trying to sell you some shady deal. Today, I’m going to show you how I use stock options to gain exposure to the real estate market without ever having to deal with a dodgy tenant or property manager.

REAL ESTATE INVESTMENT TRUSTS

Real estate is an essential asset class for all investors, but there are some headaches involved.

You’re drawn to the passive income and capital gains.  But you’re wary of the lack of liquidity, the operational challenges (chasing tenants down for rent, the ongoing repair and maintenance, etc.), and the amount of capital that is required to get into the game.  What do you do?

Rather than buying property directly, you could invest in a REIT or Real Estate Investment Trust.

According to NAREIT, the National Association of Real Estate Investment Trusts:

“REITs, or real estate investment trusts, are companies that own or finance income-producing real estate in a range of property sectors. These companies have to meet a number of requirements to qualify as REITs. Most REITs trade on major stock exchanges, and they offer a number of benefits to investors.”

The are hundreds of REIT’s trading on the US stock market of which some of the most popular are:

WPC – W. P. Carey Inc.

SPG – Simon Property Group

NRZ – New Residential Investment Corp.

O – Realty Income Corporation

OHI – Omega Healthcare Investors, Inc.

LTC – LTC Properties, Inc.

Another way to gain a diversified exposure to REITS is via iShares US Real Estate ETF – IYR.

The top 10 holdings within IYR are:

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If you want to check out a detailed example of an IYR poor man’s covered call that played out over the course of a year, you can do so  more

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Comments

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Michael Molman 8 months ago Contributor's comment

I am always looking for ways to expand my use of options. This is a nice idea that I will look deeper into. Is there a specific reason you believe $IYR will rise?

Ayelet Wolf 8 months ago Member's comment

Good question. I'd like to know this as well Gavin McMaster.

Gavin McMaster 7 months ago Author's comment

Sorry for the delay guys. IYR has had a pretty decent run up the last month or so. It's probably due for a slight pause or pullback.

That being said, I think REITs are an essential part of anyone's asset allocation, maybe just wait for a slightly better entry point.