Like the idea of steady investing every month in real estate, but don’t know how to do it?
Many investors (myself included) use dollar cost averaging to invest in stocks. It’s easy, because you can buy shares in an ETF for $50-100. That’s a lot harder to do with assets that cost hundreds of thousands.
But you can still dollar cost average your real estate investments, even if you only have $10 or $100 each month to invest. And to demonstrate how quickly you can grow your wealth with regular investments, we created a free dollar cost averaging calculator.
What Is Dollar Cost Averaging?
Dollar cost averaging means investing the same amount in an asset on a regular basis. That could mean weekly, biweekly, monthly, or even daily.
For example, you could invest $100 every week in SPY, an exchange-traded fund (ETF) that mimics the S&P 500. I invest money every week with a robo-advisor (I use Schwab, it’s free) that spreads my money across U.S. and international stocks in all sectors and market caps.
The idea is simple: by investing on a regular schedule, your portfolio will perform just like the overall assets you’re investing in. Think of it as the opposite of trying to time the market — you instead aim to mirror the market’s returns.
Sound boring? Most good investing advice is boring. Don’t pick and choose individual stocks, don’t day trade, and don’t try to time the market. Much smarter and better-informed investors get it wrong all the time, so why do you think you can beat them? It’s pure hubris.
All right I’m off my high horse, back to dollar cost averaging.
Can You Dollar Cost Average with Real Estate?
Theoretically, you could buy a rental property every month if you had many millions of dollars. But I don’t have that kind of money, and you probably don’t either.
Here’s the thing though: you don’t need to buy an entire property by yourself. You can buy fractional shares in properties, funds that own many properties, or loans secured by properties.
And that means you can invest as little as $10 at a time. Which in turn means you can dollar cost average every week (or every other week, or every month, yada yada yada).
You have plenty of investment options at your disposal, too. So much so that it can feel overwhelming. But I’ll share exactly how I dollar cost average in real estate, and you can form your own investing strategy.
Ways to Use DCA in Real Estate Investing
Some arrogant investors dismiss the importance of diversification. They say things like “If you know what you’re doing, you can earn far higher returns in a single niche than by diversifying.”
They’re not wrong, per se. If you’re an expert in a certain field, you can earn higher returns there than the typical investor aiming for historical average stock returns, for example. But it leaves you vulnerable to shocks in that sector.
Take me in 2008 as a cautionary tale. I knew more about real estate investing than the average person. But I still got my clock cleaned by the 2008 housing bubble collapsing.
Besides, even if you only invest in a single sector, you still want as much diversification as possible within that sector. If you love rental properties, you still want to own as many as possible, across as many markets as possible.
As you look to diversify, consider dollar cost averaging with these real estate investing strategies.
The most obvious way to dollar cost average real estate investments is just to buy shares in public REITs.
Real estate investment trusts, better known as REITs, are companies that either own properties or debt secured by real property. They trade on public stock exchanges, so you can invest for the cost of a single share (often $10-20). That means you can also sell shares at any time, so they’re among the most liquid real estate investments available.
But that liquidity comes with a few downsides. First, publicly-traded REITs are far more volatile than actual real estate asset values. Second — and relatedly — they correlate more closely with stock markets than actual real estate prices. That correlation defeats much of the purpose of diversifying your assets.
Still, public REITs offer a simple, affordable way to dollar cost average real estate investments.
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