Interested in making a real estate investment, but not interested in purchasing or managing property of your own? You aren’t alone. Right now, the housing market is booming. Hundreds of savvy people want to get invest. But many of these investors realize there are serious risks in making a property-based investment, no matter how the market is performing.
Other investors want a hands-free experience – to benefit from the market boost without spending hours upon hours on-site handling maintenance, lease agreements and upgrades. To decrease your financial risk, or your personal involvement, consider these eight methods of investing in real estate without purchasing property:
#1: Invest In Real Estate Investment Trusts
REITs, or real estate investment trusts, are companies. REITs own and manage real estate, as well as related assets such as mortgages and mortgage bonds. To be considered a REIT, companies must meet specific standards, including:
- Have a minimum of 100 shareholders.
- Have no more than 50 percent of shares held by five or fewer individuals.
- At least 90 percent of taxable income must be paid as shareholder dividends.
- Invest at least 75 percent of assets in real estate.
- 75 percent of income must come from mortgage interest or property rent.
This means, when you invest in a REIT, you invest directly in real estate. You can continue this investment until you’ve grown your portfolio enough to purchase property yourself, or until you no longer wish to invest in the market.
#2: Invest In Companies Focused On Real Estate
There are many companies that own and manage real estate but aren’t technically structured or titled like REITs. While the stocks of these companies usually pay a lower dividend, they have more freedom to reinvest and adapt to the changing market.
You might choose to invest in a hotel chain, resort or shopping mall, which often behave like real estate companies, even though their primary services are focused on shoppers and guests. You could also invest in more traditional companies such as RE/MAX Holdings Inc. (RMAX) and Equity One (EQY).
#3: Invest In Home Construction
You might be surprised to learn that real estate investment isn’t just about buying and profiting from existing properties. Remember, there are hundreds of homebuilders working to develop new neighborhoods in expanding metropolitan areas.
Investing in these companies will allow you to benefit from the growth of the market. You should, of course, carefully evaluate each homebuilder before choosing to invest. Is the company focused in a region with high-performance rates? Does the company seem to understand up-and-coming real estate trends?
The last thing you should know before investing in home construction is this process can be riskier than traditional investment. When the economy slows, new home sales fall and fewer properties are developed, even while the rest of the housing market continues to function as usual.
#4: Invest In Exchange-Traded Funds
A portfolio that relies on one or two companies for success is inherently risky. For this reason, investors typically want to succeed in a process called “diversification,” in which many small investments are used to build a strong portfolio.
The choice to invest in ETFs, or exchange-traded funds, can increase your diversification options. Unlike traditional funds, an ETF is a collection of stocks or bonds masquerading as a single fund. They come with broad diversification and low costs, no matter how small or large your investment.
For example, investing in Vanguard (VNQ) will give you instant exposure to 145 different real estate stocks, diversifying your portfolio with a single purchase.
#5: Invest Online
Welcome to the digital age, where new companies are available to help you get involved in the real estate market without getting in too deep. Websites such as RealtyShares allow you to invest in commercial and residential real estate and receive cash flow distributions in return.
The cash you invest might be used for apartment buildings, maintenance on residential or commercial real estate, and other market-related purchases. You’ll get the benefit of dividends and distributions from the properties you own.
These online companies are performing well, thus far. But you should still speak with an expert before making your first investment.
#6: Invest In Real Estate Notes
If you want to invest in real estate but aren’t interested in dealing with a brick-and-mortar building, real estate notes might be the right choice for you. When you invest in notes through a bank, you’re essentially buying debt at prices below what a retail investor might pay.
#7: Provide Hard Money Loans
If you aren’t a fan of complex investments, you may choose to invest in the market by simply handing over a hard money loan. This is usually a direct loan to a real estate investor, with an agreed-upon rate of return. This rate may depend on the performance of the market or the amount of time it takes to repay the loan in full.
There are risks and complications involved with hard money loans. You’ll be responsible for drawing up a contract, organizing payments and communicating with your borrower. You may also be forced to start legal proceedings if your loan isn’t repaid on time. Other forms of investment are guaranteed, so it’s important to be confident in your borrower before agreeing to provide a hard money loan.
#8: Hire A Property Manager
If you long to purchase property of your own but are concerned about the hands-on requirements of being a landlord, consider hiring a property manager. This is a great way to benefit directly from the market without being tied down.
In order to make this strategy work, you’ll need to invest in properties that offer enough cash flow to give a percentage to your property manager and still score a reasonable rate of return for your portfolio.
Contact An Experienced Professional To Learn More
Looking to make your first real estate investment? Get in touch with our experienced team of property managers at LCI Realty. We take pride in offering superior services to our clients. Call (480)-565-8981 to learn more.