Ways to Invest in Real Estate

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Real estate can be a very attractive investment, an it’s a key part of the portfolio of many millionaires.

One of the great things about real estate is that there are many different ways to invest. However, if you’re new to investing in real estate, understanding your options and knowing which one is right for you can be a challenge.

In this article, we’ll take a look at 11 different ways to invest in real estate. First, we’ll cover some ways to invest without buying and owning properties. And after that, we’ll look at the options that do involve buying or owning properties.

Hopefully, with the help of the information presented in this article, you’ll be able to identify the opportunities that would be a good fit for your own situation and start to move forward.

Possibly the best aspect of investing in real estate is the possibility of passive income that is generated from your investments. That passive income can be a great supplement, or it can help to provide for you and your family during retirement.

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Ways to Invest in Real Estate Without Buying Property

While real estate can be a great investment, not everyone wants to own properties. Buying and owning property can come with a lot of commitment in terms of both time and money.

Maybe you like the idea of investing in real estate, but you have no interest in being a landlord. Fortunately, there are some great options that allow you to invest and make money in real estate without the need to own and manage properties.

1. Real Estate Crowdfunding

Within the past several years, real estate crowdfunding has become extremely popular. There are more than 100 different websites that fall into this category, and of course, there are some differences between those websites/platforms.

In general, crowdfunding allows you to pool your money with other investors. It basically takes a peer-to-peer lending approach for the real estate industry.

Some investments will involve residential properties (like rental properties or house flipping) and others will involve commercial properties. As an investor, there is a lot to like about this opportunity. You can invest and generate residual income without the need to buy or deal with the property.

Another significant benefit is that you can get started with smaller amounts of money. Each platform will have its own requirements and minimums, but some are just a few thousand dollars, and others are less than $1,000.

The convenience and ease also make crowdfunding a very attractive option. You can find investment opportunities at any time, select the ones you want to invest in, and invest immediately.

You’ll also love the potential to earn a very good return on your investment. Of course, the returns vary depending on the specifics (with some being higher risk than others), but returns of 10% or more are possible.

Real estate crowdfunding can be a great way to add some diversification to your portfolio without sacrificing the ability to earn a good return.

There are also a few downsides to be aware of. First, some of the platforms and investments will only be available to accredited investors (requires an annual income of $200,000 or $300,000 for joint filers, or a net worth of $1 million). This requirement means that some of the investments will be unavailable to most people. However, there are some good options available to anyone (see below).

Second, if you’re investing in individual properties you should still do some vetting on your own. Most of the crowdfunding platforms will work to minimize risk by vetting the deals before they go live on the platform, but you should still perform your own due diligence.

Popular Real Estate Crowdfunding Platforms:

If you’re interested in this type of investment, here is a quick summary of some of the leading options.

Fundrise

Fundrise

If you’re new to real estate investing, Fundrise is a great place to start. With Fundrise you can invest in a portfolio spread throughout the United States. They have different strategies available based on your goals, so you can choose the one that is the best fit for you.

Their starter portfolio allows you to begin with as little as $500, and you do not need to be an accredited investor. With this approach, you won’t need to pick out individual properties or projects to invest in.

EquityMultiple

Equity Multiple

EquityMultiple offers investment opportunities in pre-vetted commercial real estate projects. With their platform, you can create a diversified portfolio across markets, asset classes, and project types.

Investments with EquityMultiple are open to accredited investors only. The minimum investment will depend on the specific project, but will not be lower than $5,000. Many projects have a $10,000 minimum investment.

Realty Mogul

Realty Mogul

Realty Mogul offers a few different investment options, including REITs and single properties. The REITs are public non-traded, and allow you to invest in commercial real estate. The REITs are also open to all investors, with a low minimum investment of $1,000.

The investments in individual properties are available only to accredited investors, and they have minimum investments anywhere from $15,000 – $50,000.

PeerStreet

PeerStreet

PeerStreet gives you the option to be more hands-on and select the individual investments in your portfolio, or you can set parameters and let the automated investing do the work for you.  Most of the investments are residential properties.

PeerStreet has a low minimum investment of just $1,000, but it is available only to accredited investors.

Highlights of Real Estate Crowdfunding:

  • Easy way to get started with real estate investing.
  • Some platforms and investments are available to anyone, while others are available only to accredited investors.
  • Some platforms offer minimum investments as low as $500 or less.
  • Invest in single properties or portfolios of properties.
  • Potential for high return on investment.

2. REITs

Another great option for hands-off real estate investing is a REIT. A REIT (real estate investment trust) is a company that invests in real estate and distributes earnings to shareholders. By investing in a REIT you will have an interest in a portfolio of properties, rather than investing in a single property.

There are several different types of REITs available:

Publically Traded REITs are subject to SEC requirements and are highly liquid. Liquidity is a big issue when it comes to real estate investments, and especially REITs. With a publically traded REIT, you can get out of the investment at any time. They are generally considered the lowest level of risk for REITs, but they may also bring the smallest returns.

Public Non-Traded REITs meet the SEC requirements but are not traded on an exchange. They are also lower in risk, but you won’t have the same liquidity that you would have with a publically traded REIT.

Private REITs do not need to meet SEC requirements and they are not traded on an exchange. Since they do not have to meet SEC requirements, they are considered higher in risk. They may be able to achieve higher returns, but many private REITs involve high fees. They are also not liquid, and you should only invest in a private REIT if you plan to leave the money in the investment for the long-term.

REITs can also vary in terms of the class of real estate. Some focus on residential properties like apartment complexes. Others focus on commercial properties.

REITs do offer a nice way to get involved in real estate investing easily and without the need to get your hands dirty with a property. But, in many cases, once you invest in a REIT (aside from the publically traded ones), you have little control over when you’ll get your money back.

Highlights of Investing in REITs:

  • Easy way to invest in real estate without owning property.
  • Not limited to accredited investors.
  • Non-traded REITs tend to lack liquidity and should only be used for long-term investments.
  • Some REITs come with high fees.

3. Mutual Funds and ETFs

Another easy way to invest in real estate is through mutual funds and ETFs. While REITs invest in real estate and properties, by owning a REIT ETF you are investing in REITs. The REIT ETF will include investments in multiple REITs.

There are mutual funds of all kinds, and some of them focus on real estate. The mutual fund will include an ownership interest in companies involved in real estate. You can choose a mutual fund that is a good fit with your investment objectives.

Like other mutual funds and ETFs, these are liquid options, so you’re not locked in to a long period of time.

Highlights of Real Estate Mutual Funds and EFTs:

  • Easy way to invest in real estate without buying property.
  • Not limited to accredited investors.
  • Liquid investment.
  • Variety of different options available.

4. American Homeowner Preservation

AHP

American Homeowner Preservation‘s (AHP) focus is to help homeowners prevent foreclosure and keep their homes. They buy distressed mortgages at discounts and then work with homeowners to keep their homes. It is open to any investor, with a minimum investment of just $100.

Investing with AHP is different than any of the other investments listed here. They have a target return of 10%. Investors are paid first, and anything over 10% will be kept by AHP. The company’s past performance has been very good, but of course, past performance does not guarantee returns in the future.

AHP features “best-efforts liquidity”, which places it somewhere in the middle in terms of liquidity.

Highlights of investing in AHP:

  • Not limited to accredited investors.
  • Minimum investment of just $100.
  • Moderate liquidity.
  • Target return of 10% for investors. Anything over 10% is kept by the company.

5. Invest in Companies that Serve the Industry

Another way to essentially invest in real estate is to invest in companies that participate in and serve the industry. This could include construction companies, home builders, real estate companies, hotels, and more.

You can buy stock in publically traded companies that fall into these categories, and generally, the share price will be impacted by the overall real estate market.

The easiest way to start investing in stocks is to use Robinhood, which offers free trades. Sign up for a free Robinhood account through this link and you’ll get a free share of stock!

Highlights of Investing in Companies:

  • Buy stock of companies involved in real estate.
  • Not limited to accredited investors.
  • Highly liquid (sell at any time).
  • High risk, high return.

6. Limited Partnerships

A Real Estate Limited Partnership is led by an experienced general partner. Other investors can join as limited partners. As a limited partner you are basically a shareholder. You can earn a return based on profits, but your liability is limited to the amount of your investments.

The results of investing in a limited partnership can be very good if it is well run, but you also risk losing your investment if it is not well run.

Highlights of Investing in Real Estate Limited Partnerships:

  • Possible to get started with just a few thousand dollars, instead of buying a property yourself.
  • High risk, high return.
  • Your results will be highly influenced by the decisions of the general partner.

Ways to Invest in Real Estate that Involve Buying/Owning Property

Now that we’ve looked at some of the best ways to invest in real estate without buying property, let’s move on and look at the options for those who don’t mind actually owning the property.

1. Rental Properties

Owning rental properties is a great way to build wealth and passive income. The property could be an apartment, condo, townhouse, single-family home, duplex or multi-unit property, or even a commercial property.

Building a portfolio of rental properties can be a great strategy, but there are some downsides. First, you’ll typically need money for a significant upfront investment to purchase the property. Unlike some of the other options we looked at earlier, you can’t get started with just a few hundred dollars.

Second, you’ll have responsibility for maintenance and upkeep. This involves both time and money. As the landlord, you could be getting calls from tenants for things like plumbing issues and other unexpected problems. The way to get around this is to hire a property manager who will take care of all of these details. However, paying the property manager will be an added expense.

Third, as the landlord, you will also be dealing with tenants. Some tenants will be great, but others may be more of a headache. Again, hiring a property manager will help with these issues.

The best way to get started is to work with a realtor who has experience with rental properties. Decide what you are looking for and get the help of a qualified realtor to find a property that suits your needs.

Highlights of Investing in Rental Properties:

  • Great long-term approach to building wealth and passive income.
  • Can be expensive to get started.
  • Involves being a landlord and taking responsibility for maintenance (unless you hire a property manager).

2. Vacation Properties

Owning vacation properties is another option that is very similar to owning rental properties. The real difference is that with rental properties you’ll typically be dealing with long-term tenants, and with vacation properties, you will be renting it out for a few days at a time.

Vacation properties can be lucrative in the right situation, but they can involve even more work than a rental property. You’ll have to get it cleaned between guests, and keeping it booked can involve some work and expense as well.

You can hire a property manager or a company to handle the property and bookings if you want to reduce your involvement. Of course, that comes with a fee. Hiring someone is probably necessary if the property is not in your local area.

One reason that vacation properties are popular is because you can use the property for yourself and your family at certain times of the year, and rent it out when you’re not going to be using it. Even if it’s not rented out all the time, whatever rent you get will help to offset the cost of owning the property.

Highlights of Investing in Vacation Properties:

  • Can be expensive to get started.
  • Possible to use the property for yourself and rent it out at other times.
  • Usually requires hiring a property manager.

3. Flip Houses

If you watch cable TV, you’ve probably seen many shows that feature stories of people who make money (or lose money in some cases) by flipping houses. The goal is to buy a house at a good price, improve it, and sell it at a higher price that results in a profit.

Many houses that are purchased with the intent of flipping are fixer-uppers, or worse. Foreclosures and other distressed properties are often good candidates for flipping.

Flipping houses is a high-risk, high-reward business. In the right situation, you may be able to make a significant profit in a short amount of time, but it’s equally possible that you could lose money, and a lot of time.

In order to have success as a flipper you will need to be very familiar with the market, have the knowledge and ability to do work yourself or hire someone competent, be willing to accept risk, and you’ll need to work with a sense of urgency. The carrying costs of owning the home until it is sold will have a big impact on your profitability, so you’ll need to get it completed and sold as quickly as possible.

To buy the properties, you’ll need to have money available, or have easy access to money through an investor or loan.

Highlights of Flipping Houses:

  • Requires capital to get started.
  • High risk, high reward.
  • Requires knowledge and experience.

4. Rent Your Old House

One way to get started with real estate investing is to rent out your old house after you move, instead of selling it. You can live in a house for a few years, then move on to another home and rent out your old house.

This approach makes it possible to slowly build up a portfolio of rental properties. You’ll still have the same potential downsides of owning a rental property (responsibilities for maintenance and dealing with tenants).

The hardest part of this approach may be that you’ll need to save money for the down payment on your next home, since you won’t have proceeds from selling a house.

Highlights of Renting Your Old House:

  • Allows you to live in the home for a few years before making it a rental property.
  • Involves being a landlord and taking responsibility for maintenance (unless you hire a property manager).

5. Rent Part of Your House

This is one of the most realistic options for getting started with owning rental properties, and there are a few possibilities. You could buy a duplex or multi-unit house, live in one part and rent the other unit(s). Or, you could simply rent out a single room or a part of your house.

House hacking is a popular approach in the financial independence community for reducing housing expenses and helping with the cost of owning a home. You can drastically reduce the amount of money you need to pay your mortgage by taking on a tenant or roommate, and in some cases (especially with multi-unit properties) you may even be able to completely offset the cost of your mortgage.

This offers a great option to try out real estate investing and being a landlord with a smaller commitment than purchasing a rental property.

Highlights of Renting Part of Your Home:

  • Great way to reduce your housing expenses.
  • Ideal with duplexes or multi-unit buildings.
  • Serves as a good introduction to rental properties.

Getting Started with Real Estate Investing

Now that we’ve looked at 11 different options for investing in real estate, take a look at your own situation and your goals to see what might be a good fit for you. If you’re ok with owning properties and being a landlord, renting out part of your home is an ideal way to start.

If you don’t want to own or manage properties, there are a few possibilities that you can start immediately. My first recommendation is to try to a crowdfunding platform like Fundrise (my wife and I invest with Fundrise). With Fundrise you can choose a plan that matches with your goals and invest in a portfolio of properties with as little as $500.

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Ways to Invest in Real Estate

11 Ways to Invest in Real Estate (With or Without Buying Property). Looking for a great way to make money with passive income? Real estate can be a key part of your investment portfolio and help you to reach financial independence or offer a source of cash in retirement. Get advice about strategies with tips about commercial and residential real estate stuff. Own properties or REITs, crowdfunding, mutual funds, ETFs. #investing #realestate #money #personalfinance