So many different ways (not even to buy property) to invest in real estate are available that almost everybody can be a real estate investor in one way or another.
Can you really be a real estate investor and not own a property of your own?
When people think about investing in real estate, they think about the mom-and-pop investor who owns so many rental properties and spends their free time fixing and dealing with tenant problems.
While this is certainly a possible and profitable approach, there are many other options to invest in real estate. The process of buying a property is one of the biggest hang-ups people encounter when considering investing–they don’t have enough money, or there’s too much risk, or they don’t know what they’re doing.
Methods of investing in real estate without property
1. Try investing in REIT
A Real Estate Investment Trust (or REIT) is a real estate holding and operating company. You can buy shares in a REIT and thus own a small part of the real estate company
Your capital is combined with funds from other investors and is used to buy property. The REIT owns the properties, and you are getting the benefits of the cash flow and value created by the REIT owned physical property.
REITs come in many forms, and they often specialize in a particular type of real estate like:
- multifamily housing
- Office Structures
And if you are interested in getting a general exposure to real estate in your portfolio, there are even index funds that track the overall real estate market (similar to an index fund for S&P 500). One example is VGSIX-the Real Estate Index Fund for Vanguard.
2. Real Estate Crowding
Private equity investment in real estate used to be a part of the super-rich and well-connected. But crowdfunding has allowed average investors to take part in real estate in a way that was previously impossible
Crowdfunding is akin to a REIT. Fund managers are pooling the money to purchase either a single property or several properties. The proceeds from the construction, service and eventual selling of the real estate are split among the owners. Generally there are two parts–a dividend (paid from operating cash flow periodically or annually), and equity growth (from appreciation, expressed in share price).
There are dozens of crowdfunding platforms for real estate, but two are Fundrise and DiversyFund which focus on helping unaccredited (i.e., not super-wealthy) investors get involved in real estate.
They all allow you to start with as little as $500 and invest your money in a diverse real estate portfolio.
- You can choose your risk tolerance and balance towards cash flow or appreciation from Fundrise with an annual return of 10.8%.
- DiversyFund is also a crowdfunding player. They began in the year 2017. But they have produced an impressive annualized return of 17.7 per cent from their strategy of investing exclusively in multi-family value-added housing.
3. Loaning hard cash
You can “become the bank” if you have the cash to lend money to house flippers or tenants who need to do serious work on a property before they can get a standard bank loan.
A hard money loan is usually a short-term (one year or less) loan that is issued during the construction process on a house.
For instance, I lent money to an investor who purchased a house planning to do a complete renovation and then resell the property. I gain 13 per cent interest plus 2 points (a point is an initial payment of 1 per cent of the loan’s value). I loaned a total of 75 per cent of the repaired value (ARV), and it is secured by the property itself.
You reduce your risk by using conservative numbers, and using physical real estate as collateral. Personally, I just want to lend on properties that I don’t mind owning if the worst turned out to be the worst and I had to foreclose.
One way to get interested in online hard-money lending is through a Groundfloor website. Groundfloor produces the loans for the property flippers, and you can pay as little as $10 to own a portion of the loan and earn the interest.
You won’t earn as much as you could by building yourself relationships with flippers and landlords, but with Groundfloor you can make about 12 percent per year in my personal experience. Most platform loans are in the interest range of 7-14 percent.
4. Get yourself started in being a “ Money Partner”
Many people want to invest in real estate, but they don’t have the cash alone. Although you get 80% of your loans from a bank, you can easily repay $20,000 – $50000 with the other 20% plus the amount of budgetary renovation.
Like the hard money loan scheme, you are a financial partner, and the other party takes the deal (and usually continues to refurbish or run the property). the money is brought to your table. You become an equity partner and will make those shares of your total profit at the end of the day rather than a loan at a fixed interest rate.
For instance, a flipper might be given a hard money loan to cover 70% of its total buying and refurbishing costs but it still needs the other 30%. You’re moving in here. In exchange for the remaining 30 percent of the funds, the renovation and sale of the house (the 50/50 share of profit is common) will give you a certain percentage of the profit.
Almost all terms can be pictured in the form of these forms of collaborations. it’s best to work with someone you know and trust from my experience.
However, the terms of the partnership should even be established and agreed in advance and preferably reviewed by a lawyer. There are many things that can go wrong in a deal, and you want the best possible protection for your hard-earned money.
Wholesale is a way to get started and to to invest in property to build up cash reserves to buy more properties.
If you’re unaware of it, the basic premise is to go and find the property, put it under contract, and then sell the contract for a fee to another real estate investor.
Wholesale treatment is not passive, to be clear. You must be prepared to do the work to find really great deals. These are usually caused by people who suffer financially or otherwise.
Either the house itself is in a state of distress – too much work is needed for the normal channels to sell – or in the life of the owner something happens that you must quickly sell for cash. They can face bankruptcy, or their taxes are behind them.
6. Get a license for your real estate business
I believe that getting your license can be a good way to make extra money if you already have an interest in property. Most work takes place at night and at weekends, so it can be done even when you get a day’s work.
When you decide to take this path, you have to maintain your license for a reasonable amount of money.
7. Offer Freelance Real Estate Services
You will learn a lot by providing a service to real estate agents or buyers if you are interested but are not yet ready to buy property.
Freelancing is an easy way to get extra funds and, from my knowledge, everybody can learn how to make $250 per day with their skills.
There is a whole property industry (i like to call it that) built in order to provide for those in real estate with financing, marketing, software and other services. Nearly any independent service you might think can be targeted at the real estate area.
Here are some examples of freelance services:
- Transaction co-ordinator -Once a deal is signed between a customer and a seller, property brokers also pay someone else to arrange the completion phase to insure that all of I and “t”‘s are protected by paperwork. You can quickly learn to make 200-300 dollars per deal to arrange and get it to completion.
- Bookkeeper- Real estate investors and agents must maintain good financial records like any other business. You will learn how to become a bookkeeper for the real estate market if you have a good look at detail and passion for numbers. Many fields (such as reading, and classifying property closing statements correctly) can be taught that separate you from every old bookkeeper.
- Marketing coordinator- If you have a marketing experience or a desire to learn, you can run Facebook ads, mailing campaigns, or social media profiles for agents and investors to help increase leads.