Rarely does a day go by without a headline about how wild the real estate market is right now. Headlines about a home receiving 76 all-cash offers and reports that the average home buyer must offer over asking price are enough to make some new investors pump the breaks before considering purchasing an investment property. Fortunately, there are multiple ways to invest in real estate without buying property.
Many of us automatically think of being a landlord as the only way to invest in real estate, but there are actually several ways to add real estate to your portfolio without buying an entire property, or managing it for that matter. In this post, we’ll introduce you to several real estate investment options that are less of a financial and time commitment than purchasing and managing an entire property. Here’s how to invest in real estate without buying property!
Real Estate Equity Crowdfunding
Popular crowdfunding platforms like Kickstarter and GoFundMe allow you to contribute smaller amounts of funds to participate in bigger projects or inventions. Likewise, there are several platforms that allow you to do the same for real estate developments.
Using platforms like Fundrise or Crowdrise, you can invest in real estate as an individual investor participating in a larger project funded by multiple investors. In real estate crowdfunding, profits typically arise from rental income or the appreciation on a property at sale.
Real Estate Syndication
In real estate syndication, investors contribute funds through a sponsor, typically for a multifamily real estate project. The sponsor is in charge of performing all the legwork for the project, including identifying properties, performing renovations, property management and rent collection, and property sale. Meanwhile, individual investors participating in the project can enjoy a passive income stream from their cut of rental collections and/or a property sale, depending on the terms of the deal.
While real estate syndication and crowdfunding may sound similar, there are a few key differences. The primary difference is that crowdfunding is typically a way for project owners to source funding from a group of investors. It is less formal and more of an outreach program to raise funds. Syndications, however, are more formal with structured deals in place between the investor and the sponsor. When participating in a syndication, investors can take part in a larger project that they might otherwise be able to participate in with limited capital, and they can enjoy passive income while the project sponsor handles the operations of the project.
Learn more about Crowdfunding vs Real Estate Syndication to determine which may be right for you.
Real Estate Investment Trusts (REITs)
Real Estate Investment Trusts (REITs) are companies that own or finance real estate properties that produce income. They pay out at least 90 percent of their taxable income from those income-producing properties to the shareholders.
Most REITs operate on major stock exchanges, and investors purchase company stock. The stockholders receive dividend payouts. Many people purchase REIT stock through their 401(k)s or other investment plans as a common way to invest in real estate without buying property.
Exchange Traded Funds (ETFs)
ETFs are a bundle of stocks and funds in one fund. Much like mutual funds or index funds, investors who purchase ETFs are investing in a set portfolio comprised of many stocks or bonds. Some ETFs focus only on real estate, whether through a collection of REITs or other real estate stocks. Essentially, instead of hand-picking each REIT to invest in, a purchaser will instead choose a pre-made portfolio.
Invest in Home Building Companies
More and more buyers are considering new homes due to the current low inventory. As a result, now could be a good time to keep an eye on the value of stock for companies that build new homes. This could be an avenue to invest in real estate without buying property yourself. If you want your investment to have a local feel, simply research which new build companies have a big presence in your area.
Purchase Debt
Rather than investing in a property, another option is to invest in the debt that backs real estate projects. This can be done by working directly with a real estate investor or a bank. Another option is crowdfunding real estate debt. Just as the name suggests, investors purchase a portion of the loan. PeerStreet is a popular platform for this.
Regardless of whether you crowdfund or directly purchase debt, you may need to be an accredited investor for this option.
Final Thoughts
Investors have many options available to invest in real estate. The traditional purchase of a property followed by landlord duties remains an option, but there are other options that can make real estate investing more accessible and more flexible for a variety of cash-flow and asset scenarios. Life Bridge Capital is a leading real estate syndication company. We offer our investment partners the opportunity to leverage shares of multifamily rental properties into a passive monthly income. Learn More
