Investing in real estate can be a great way to generate passive income and build long-term wealth.
However, not everyone can afford to buy physical property, as it usually requires a large amount of capital. Moreover, not everyone can afford to invest the kind of time, money, and effort needed to maintain a real estate property.
Fortunately, it is possible for you to invest in real estate without buying actual property. Below are four strategies that can help you become a real estate investor without owning property outright.
Real estate investment trusts
Real estate investment trusts (REITs) are probably the best choice for those who want to invest in real estate without buying physical property. When you invest in an REIT, your share of money is pooled with other investors’ money and is used to buy income-generating real estate properties.
The income generated is divided and paid out to the shareholders on a quarterly or monthly basis.
REITs are mandated by the SEC to pay out 90% of their taxable income to their shareholders. Your investment in REITs thus can turn into a source of recurring income for you.
Depending on your preference, you can choose to invest in a publicly traded REIT or a privately held REIT. Generally, publicly traded REITs are considered a better choice due to their transparency and low fees.
Real estate focused funds
There are a number of exchange-traded funds, mutual funds, and index funds that invest in real estate.
Many of these funds have real estate holdings not just in the United States but also in Europe and Asia. Often, investors use real estate as a hedge to offset the performance of stocks and bonds. In the event of a significant market correction or even a recession, you might still get reliable returns from these funds.
Real estate crowdfunding
Real estate crowdfunding platforms allow small, unaccredited investors to invest in real estate and get short-term as well as long-term returns. Your initial investment can be as little as $500.
These platforms pool the investments made by individual investors and buy residential as well as commercial real estate properties.
The rental income from the properties as well as the profits made by selling the properties are divided and paid out to the investors on a quarterly or yearly basis. That too can be a reliable source of passive income.
Hard money loans
If you have cash that you can afford to lend, you can offer hard money loans to real estate investors and flippers. The investor or flipper will borrow money from you, buy the property, renovate it, and sell it to someone else. Once they do, they will repay your loan with interest.
In addition, you can become an equity partner and ask the investor or flipper to share a portion of the proceeds from selling the property instead of repaying your loan with interest.
It should be noted that lending money to flippers can be a risky proposition. It’s important to consult an attorney and create a legally valid agreement that clearly specifies the terms of the loan and protects your interests.