Investing In Real Estate Without Buying Property
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Real estate is a popular investment, either for capital appreciation or as income. However, there are challenges. Buying land is expensive. Unless you have a lot of up-front capital to stake, you may be locked out, and once you make that purchase you have a lot to lose if the investment goes poorly. Then, once you own the land, you need to manage it. If you want to sell, that means refurbishment and upgrades. If you want to generate income, that means property management. There are ways, though, to invest in real estate without actually owning property. For help investing in retail, consider working with a financial advisor.
The most accessible option on this list is probably real estate investment trusts, or REITs. These are fund-based assets, like an ETF or a mutual fund, that specifically hold a portfolio of real estate investments.
You can also invest in real estate funds through ETFs and mutual funds. This is a strong option for investors who would like access to this market, but who would also like more diversification. A REIT holds mostly or exclusively real estate investments.
Above, we note that you can invest in ETFs and mutual funds that themselves invest in the real estate market. Many of those hold stock in publicly traded real estate companies. If you want to make a more direct investment in real estate, you can simply buy that stock yourself. Large landlords, which are often organized as REITs in their own right, often operate as publicly traded companies. Other companies specialize in construction or the equipment used in large building projects.
By law, MLPs must operate in real estate or in industries that are adjacent to real estate. This typically means that they either work directly in real estate, such as land development and property management, or in natural resource extraction and otherwise taking value from real property. MLPs tend to be higher-risk, higher-reward assets. They can generate strong yields and capital returns for investors, but are also prone to significant volatility and potential losses.
Just like you can invest in real estate ETFs, you can also invest in real estate mutual funds. A colleague of mine, Taylor Schulte of Define Financial in San Diego, says he swears by a real estate mutual fund known as DFREX. Why? Because its low costs and track record help him feel confident about future returns. In addition to low costs, Schulte says the strategy of DFREX is backed by decades of academic research from Nobel Prize winning economists.
Consumers invest in REITs for the same reason they invest in real estate ETFs and mutual funds; they want to invest in real estate without holding physical property. REITs let you do exactly that while also diversifying your holdings based on the type of real estate class each REIT invests in.
Companies that are real estate-focused can include hotels, resort operators, timeshare companies, and commercial real estate developers, for example. Make sure to conduct due diligence before you buy stock in individual companies, but this option can be a good one if you want exposure to a specific type of real estate investment and have time to research historical data, company history, and other details.
I'm a finance writer with years of experience covering topics such as taxation, Social Security, entrepreneurship, investing, real estate and housing markets. My work has appeared on MSN, Yahoo Finance, Fortune, CNBC, CBS, U.S. News and more.
For everyday investors who want easy access to their capital, there are publicly traded instruments that are liquid, meaning you can buy and sell them at anytime, just like stocks. Some popular options are real-estate investment trusts (REITs), real-estate mutual funds, and real estate ETFs.
A REIT is a company that owns and operates real estate that produces income and returns most of that income to its shareholders. Some REITs have a diversified portfolio of properties, while others focus on specific types of real estate, such as hotels, office buildings, warehouses or hospitals.
To achieve higher diversification, some investors like real-estate mutual funds, which can be seen as baskets of REITs and other kinds of real-estate investments. And real estate ETFs have grown in popularity because they are similar to real-estate mutual funds but offer lower fees and often track a broad index, such as the MSCI U.S. REIT Index or the Dow Jones U.S. REIT Index DWRTF, +1.11% .
As a real estate investor myself, I can attest to its wealth-building power. Whenever the subject comes up in conversation, almost everyone says they have thought about investing in real estate. So why is it less than 1 in 7 have done it?
When most people think of investing in real estate, they think of the mom-and-pop investor who owns several rental houses and spends their evenings and weekends fixing them up and dealing with tenant issues.
Your money is pooled with other investors' money and is used to purchase real estate properties. The REIT manages the property, and you get the benefits of the cash flow and appreciation generated by the REIT's physical property.
Private equity real estate investing used to belong solely to the super-rich and well-connected. But crowdfunding has allowed average investors to participate in real estate in a way that was impossible before.
For example, I loaned money to an investor who bought a house intending to complete renovation and resell the property. I am earning 13% interest plus 2 points (a point is an up-front fee of 1% of the loan). I loaned a total of 75% of the after repaired value (ARV), and the real estate itself secures it.
By using conservative numbers and using the physical real estate as collateral, you reduce your risk. I only like to lend on properties I wouldn't mind owning myself if worst came to worst and I had to foreclose.
One way to participate in hard money loans online is through a platform called Groundfloor. Groundfloor creates the loans to the real estate flippers, and you can invest as little as $10 to own a piece of the loan and collect the interest.
The ideas above are mostly passive ways to invest in real estate. I wanted to give a few other ideas to make money in real estate through less passive means while still getting involved without much money and without having to buy a property.
If you're not familiar with it, the basic premise is you go out and hustle looking for good deals on properties, put them under contract, then sell that contract to another investor for a fee. We were able to make an average profit of around $10,000 per property this way, without ever owning it!
Most people will tell you you will never make any money as a part-time real estate agent, but that hasn't been true in our experience. If you are interested in real estate already, getting your license can be a great way to earn some extra money. And most of the work is on nights and weekends, so even if you have a day job, it can be done.
An entire industry is built around financial, marketing, software, and other services provided expressly to those in real estate. Almost any freelance service you can think of can be targeted toward the real estate niche.
Whether passively investing through a REIT or crowdfunded syndication or starting a side hustle catering to the real estate industry to save up investment capital, there are so many different ways to participate in the most significant wealth generator of all time.
Luckily, there are many ways you can invest in real estate without actually dealing with tenants. Here are six of our favorite tips for people wondering how to invest in property without buying a house.
A real estate investment trust (REIT) is a company or other form of incorporated business that owns, operates or provides financing for real estate intended to produce income. Many REITs are traded on exchanges, which makes it easier to sell your stake in the investment if you need to access your funds.
Another option when looking to invest in real estate without owning property is an ETF. An ETF, or an exchange traded fund, is a group of stocks or bonds packaged together into one fund. Most real estate ETFs are made up of companies that invest in stocks issued by REITs.
Two of the bigger downsides when comparing a real estate mutual fund to an ETF are the expenses and minimum investments. Mutual funds tend to have slightly higher expense ratios, which will lower your overall return. Plus, they typically require a higher minimum deposit.
If you are an accredited investor, there are several real estate crowdfunding websites available. Fundrise and Realty Mogul are two of the better-known ones. Both have many deals available. Just be aware: There are a limited number of investors allowed for each, and the minimum investment can be high.
You should consider this option if you have an idea for a service to serve the real estate industry or know of one you can get involved in backing along with no shortage of confidence in the business plan and the housing market.
Meanwhile, other options like crowdfunding, backing home construction and investing in real estate focused businesses may offer higher returns, but there is somewhat more risk involved, so you need to know what your tolerance is.
Andrew Dehan is a professional writer who writes about real estate and homeownership. He is also a published poet, musician and nature-lover. He lives in metro Detroit with his wife, daughter and dogs.
With the invention of real estate investment trusts in 1960, real estate ownership is a mouse-click away. REITs own income-producing real estate in various sectors. These investments are governed by the Securities and Exchange Commission, trade on major stock exchanges and pay regular dividends. In fact, REITs are required by law to pay out 90 percent of their income in dividends. Beyond REITs, there are numerous ways to own real estate, without buying a property. 781b155fdc