How to Invest in Real Estate Without Buying Property

Interested in building wealth through real estate investing? Don’t want the responsibilities of managing a property, owning a home, dealing with tenants, or worrying about zoning regulations, property taxation issues or other property ownership issues? There are plenty of options available!

Investing in real estate has become easier and easier. There’s now a wide range of options to suit any budget and all levels of risk tolerance. With the information below, you will be equipped to start your search for the perfect real estate investment.

What Is Real Estate Investing?

In general, real estate investing involves buying property or property-related assets with the goal of earning a return. This is either through rental income, property appreciation, or both. Many people think this is restricted to direct investments such as buying a home or a property they can rent out to others. However, real estate investing can also include indirect investment strategies like real estate investment trusts, crowdfunding, and real estate syndicates. Real estate investing is an increasingly popular way to diversify your investment portfolio, generate passive income, and build wealth.

Real Estate Investment Trusts (REITs)

REITs are one of the most popular and accessible ways to invest in real estate without owning property. A REIT is a company that owns, operates, or finances income-producing real estate such as office buildings, shopping malls, apartment buildings, hotels, warehouses, and health care facilities. There are REITs for virtually every real estate sector.

Although many people have never heard of REITs, they have been in existence in America since 1960. Public REITs are regulated by the Securities and Exchange Commission and are listed on major stock exchanges. They can be bought and sold just like stocks.

Advantages of REITs include:

• Low barrier to entry: You can invest with just a few dollars.
• Liquidity: Unlike physical real estate, REITs are easy to sell on public exchanges.
• Diversification: Many REITs hold dozens or even hundreds of properties across regions and sectors.
• Steady income: REITs are required to distribute at least 90% of their taxable income to shareholders.
• Professional management: Similar to mutual funds, REITs are managed by investment professionals who are experts at evaluating potential properties for purchase.

If you are wondering how to start investing in real estate, an REIT is a great option, but keep in mind that their prices fluctuate and that they are not all created equal. Be sure to research the history of a fund, the sector it invests in (industrial, office, retail, etc.) and the quality of its management before investing.

Real Estate Mutual Funds and ETFs

If you are looking for a diversified investment with professional management, real estate mutual funds and real estate exchange-traded funds (ETFs) could be for you. These funds invest in a mix of REITs and other real estate-related securities.

Real Estate Mutual Funds are actively managed. This means fund managers make decisions about properties to buy and sell in an effort to outperform the market. They can be purchased directly through the fund company. They are priced once per day after markets close.

Real Estate ETFs, on the other hand, are usually passively manage. Rather than fund managers making strategic decisions about what to buy and sell, they hold similar assets to a specified real estate index. Their goal is to keep pace with the market rather than to outperform it. They trade on stock exchanges throughout the day, just like individual stocks, offering greater flexibility and lower fees.

Both these investments offer these advantages:

• Hands-off investing: The funds are managed by professionals who handle research, selection, and ensuring the portfolio of holdings is balanced. The downside of this is that investors have less control.
• Diversification: Investors get exposure to multiple REITs and sectors in one fund.
• Accessibility: Anyone can invest in these assets with as little as $100. For people wondering how to begin investing in real estate, this can be an ideal place to start.

Real Estate Crowdfunding

Real estate crowdfunding allows investors to pool their money into real estate developments or income-generating properties. This is done via online platforms like Fundrise, EquityMultiple, and CrowdStreet. Investors can choose a platform that matches their level of real estate investing experience or one that specializes in a specific sector.

Benefits of real estate investing via crowdfunding:

• Lower investment minimums: Some platforms let you start with as little as $10 or $500.
• Access to larger deals: These projects are often institutional-grade investments that were previously out of reach for regular investors.
• Variety: Choose projects based on risk tolerance, location, and projected returns.

There are some downsides to real estate investing via crowdfunding. Many crowdfunding investments have low liquidity, meaning you cannot easily sell your investment the way you can an REIT or a real estate mutual fund. Some also involve higher risk, especially for projects in the development stage. Finally, the projects tend to have shorter histories, making them more challenging to research.

Real Estate Syndicates

This type of real estate investing allows multiple investors to pool their funds and invest in larger real estate projects such as apartment complexes, office buildings, or industrial parks. Typically, real estate syndicates have a managing partner who purchases and sells the properties and handles the management, and limited partners (investors) who contribute the capital.

Advantages of real estate syndicates:

• Potential for high returns.
• Passive investing: Investors do not participate in the operational work at all.
• Access to premium properties, which are often larger and better located than what individuals could buy alone.

Real estate syndicates, like real estate crowdfunding, have limited liquidity. Anyone interested in this type of real estate investing can expect their money to be tied up for 3 to 7 years. They can also have complex structures requiring that you understand the legal, financial, and tax implications. Since the sponsor does all the operational work, investors need to do more research about them, along with other types of real estate investing.

Looking into how to begin investing in real estate? This is the perfect time! In the past, real estate investing was inaccessible to the average investor, but innovative new alternatives have made it possible to invest in real estate indirectly. Many types of investments allow you to start small and learn as you go.