Best Ways To Invest In Real Estate Without Buying Property
Don’t you know that there are more ways to invest in housing without dealing with tenants or the other minutiae of landlord work.
Following are among the options in no particular order:
1. Investing in Real Estate ETFs
As a physical asset with tangible value, real estate has characteristics that can lead to steady streams of income.
An ETF which is also known or stands for Exchange-Traded Fund, is a collection of stocks or bonds in a single fund. ETFs are similar to index funds and mutual funds in the fact they come with the same broad diversification and low costs over all.
There are several other ETFs that offer exposure to real estate, too. So do your own due diligence and consider the possibilities.
2. Investing in Real Estate Mutual Funds
Mutual funds are professionally managed pooled investments that invest in a variety of vehicles, such as stock and bonds. Investors purchase mutual fund shares, or units, which are bought or redeemed at the fund’s current net asset value (NAV). NAVs are calculated once a day and are based on the closing prices of the securities in the fund’s portfolio.
Real estate Mutual Funds typically invest in REIT stocks, real estate related stocks, or a combination of both.
Real Estate Mutual Funds (just like REITs) give individual investors with limited capital access to either diversified or concentrated real estate investments because they have relatively low investment minimums. When it is diversification they provide, both RE Mutual Funds and REITs help mitigate risk.
Depending on their investment strategy, real estate mutual funds can be a more diversified investment vehicle than are REITs. This can cut down on transaction costs for those looking for greater diversification concentrated in one or a few funds. They also have the benefit of professional portfolio management and research.
3. Investing in Real Estate Investment Trust (REITs)
Real estate investment trusts, or REITs, can be excellent ways to create wealth and growth to your portfolio without adding too much risk. But there’s no such thing as a perfect investment. Like other types of investments, REITs have pros and cons that you have to consider.
What Are the Highlights of REITs?
- It works like a mutual fund.
- It is a corporation that has the license to solicit or offer investments.
- Its shares must be widely held by shareholders.
- It must primarily own or finance real estate.
- It should own real estate with a long-term investment horizon.
With that being said, it is advisable that clients stay away from non-traded REITs and buy only publicly-traded REITs instead. The U.S. Securities and Exchange Commission (SEC) recently came out to warn against non-traded REITs, noting their lack of liquidity, high fees, and lack of value transparency create undue risk.
4. Investing by Hiring a Property Manager
It is wise to consider hiring a property manager, as the value you get can make the cost well worth it. For starters, it takes a great deal of time to self-manage even one investment property, and a portfolio of several properties could easily start to feel like a full-time job.
Hiring a property manager to deal with the day-to-day operations of your rental properties gives you more time to focus on your career, family, and on finding your next property.
Even if you feel that you know the management process pretty well. Simply put, your property manager does them better and more efficiently.
There could be some cases where self-management makes perfect sense. For example, if you want to treat your real estate investing as a job and not just as a passive investment activity, managing your own properties can help maximize your profitability.
For most investors, however, it’s a good idea to take time to consider the value an experienced property manager can bring to the table before deciding to do it alone.
5. Investing in Real Estate Notes
What is a Note in Investing?
A Note is a Legal Document that serves as an IOU from a borrower to a creditor or to an investor. Notes typically obligate issuers to repay creditor the principal loan, in addition to any interest payments, at a predetermined date.
A real estate note is simply an IOU secured by property. In a conventional real estate transaction, a buyer makes a down payment, obtains a loan, and signs a note promising to pay a certain amount each month to the lender until the loan, plus interest, is paid.
It is worth noting, however, that real estate notes are not recorded in the county land records like their mortgage and deed of trust counterparts are. Instead, the loan originator holds the promissory note over the course of the outstanding balance. As long as the borrower owes, the lender will hold onto the note. Not until the debt is paid in full will the note be relinquished and returned to the borrower.
In the event one party lends to another, it is generally considered good practice to have some form of documentation memorializing the transaction. The document should identify the parties, the amount borrowed, the time for repayment, the rate of interest, conditions of default and any other necessary terms. Perhaps even more importantly, however, the document represents much more than an IOU: it represents an opportunity for savvy investors.
If for nothing else, it’s entirely possible to invest in real estate notes for sale. As it turns out, buying and selling real estate notes is a viable investment strategy, as long as you know how to go about doing so.
6. Investing in Real Estate Crowd Funding
Current technologies offer tons of new and innovative tools for connecting real estate investors with investment opportunities. Crowdfunding platforms provide one such environment.
Real estate crowdfunding is an online investment platform that allows prospective real estate investors to place funds into specific projects. Essentially the platform connects real estate developers with investors, who then put their cash into that project, such as redeveloping an apartment complex. When the project is completed, the investor gets their share of the profits eventually
The primary difference between using a crowdfunding site versus on your own investment journey is that your investment is managed by a team of real estate professionals. Of course, that is also the biggest risk as you are completely dependent on the project developer to deliver what they promised.
7. Investing Real Estate Online
8. Hard Money Loans
Just like any other lending institution, hard money loans are loaned out over a specific time period at a predetermined interest rate percentage. Generally, hard money loans are lent over one- to five-year period, with interest payments made during the first few months and a balloon payment made at the end of the term.
It is strongly advised to ensure you have strong equity in the deal, and not loan more than 70% of the property’s value. It is also wise practice to require the borrower to have title insurance. In the event that you have to foreclose on the property, title insurance will protect you from any liens (unpaid debts) on the property.
When determining which avenue to take when investing in real estate online, always consult with a real estate advisor and conduct thorough research into the fees, terms, and timeframe your funds will be held in the investment.
Which Real Estate Investment is Best for You?
If you’re considering investing in traditional real estate such as residential or commercial properties, doing your due diligence doesn’t just mean coming up with a down payment. Knowing your local market is important.
If you’d prefer to be more hands-off with your investments, REITs and crowdfunding platforms are easier ways to add real estate to your portfolio without owning physical property.