There is a common misunderstanding that property ownership is a requirement when it comes to investing in real estate. It’s justifiable to assume that direct property ownership is a way to invest in real estate. But truthfully, there is an abundance of real estate opportunities that don’t comprise property ownership, which offers a profitable, continuous flow of cash, eliminating the hustle and bustle of maintenance from an investor.
With these other options, investors can benefit from real estate’s appreciation, gain bonuses from rent paid by the tenants, and also take pleasure in their portfolio’s diverseness into another reliable asset level-all without the expenses of structure maintenance, land lording, and other responsibilities of property ownership. The following are different ways to invest in real estate without buying property.
Invest in Real Estate Investment Trusts (REITs)
This is an organization that either finances or owns real estates that produces income. REITs invest most of their money into real estate, and that’s how they make most of their money. REITs were introduced in 1960 giving individual investors the chance of investing in real estate as an asset without the requirement of direct property ownership. Similar to mutual fund, REIT investors own shares of the REIT while the REIT owns and manages the investments made. Investors gain returns in the form of a bonus depending on the achievement of the REIT’s debt and equity investments.
According to the law, a REIT is obliged to invest a minimum of 75% of its assets in real estate and gain at least 75% of its gross income from real estate investments. It is also required to share 90% of its taxable income with shareholders. Earnings will not be taxed at a company level if a REIT meets these qualifications. Instead, income tax will only be paid for dividend earnings by REIT investors. Some REITs focus on both commercial and residential property. Most REITs are equity REITs, however some trade in mortgages rather than actual properties.
Real Estate Mutual Funds
A mutual fund is a type investment where an investment company accumulates its clients’ money with the goal of investing on their behalf. It’s similar to the concept of a private equity fund. Part of the mutual funds share is owned by the mutual fund investors while the mutual fund itself runs the investments that it makes. As a mutual fund investor, you will earn returns from a mutual fund through dividend and share appreciation, conditional to the performance of its investments. Real estate mutual funds normally invest in REITs, real estate inventory or purchasing property directly. These options can include commercial real estate (e.g. office buildings, storage units, large apartment buildings), residential real estate (e.g. single-family homes, townhomes), and industrial real estate (e.g. factories and warehouses).
There are innumerable mutual funds that individual investors can easily access. Each offering its own degree of diverseness, fee structure and investment minimum. Mutual funds typically offer high liquidity and low barriers to entry, providing ordinary investors with access to an expertly managed fund. Since it’s a hands off investment, Investors will only provide capital, no management is required of them.
Mutual funds generally invest in publicly-traded assets. Unlike a private equity fund which holds illiquid private investments. Since liquidity is usually regarded as a benefit, national markets high capability and clarity also bears the disadvantage of providing few opportunities to create enormous returns.
Since mutual fund investments are publicly traded, it’s important to remember that the net asset value of its shares can be greatly correlated to the changes of the national trade in contrast with being solely tied to the congenital value of its basic assets. As a result, it’s one of the most inconstant real estate investment choices.
It is crucial to understand the arrangement of the fund’s investment portfolio when selecting a real estate mutual fund. Mutual funds can invest across asset classes and industries, but other regulation demands them to dispense at least 80% of their assets to the investment nature understood by their names. However, a mutual fund’s name can be ambiguous and deceitful, and it is compulsory for the investor to have the financial intelligence required to fathom the mutual funds distribution and choose carefully. Additionally, mutual funds come bearing high-veiled expenses and fees, making them less cost-effective.
Private Equity Funds
A private equity fund is an investment standard which investors accumulate their money into a fund so as to make investments on behalf of the group. This private organization is normally legally managed in the form of a limited liability partnership with a definite manager or management group which is in charge of the fund’s operations. The management group or the manager runs the daily management of the fund allowing the investors to pursue other options or work full-time jobs.
Using private equity funds to invest in real estate will require you to provide capital only, leaving the investment management duties to the fund manager(s). However, it is important for you as a fund investor to understand the inferred risks and returns of private equity investments. This is because investments minimums and costs are usually significant.
Access to private equity funds is naturally limited to certified investors and firms with large capital. Investment minimums alter, but are commonly at least $100,000. They also typically carry a two and twenty fee arrangement, where the fund members are charged a 2% annual management fee together with a 20% fee empirical to the profits gained by the fund.
Wholesaling real estate is quite similar to flipping homes, but you don’t possess a home or contribute to maintenance cost. Wholesaling a house simply means abridging someone who is seeking to trade their house, and immediately taking that contract and trading it to an imminent buyer for a profit. Wholesaling is quite a risky investment since you require a lot of financial, legal and real estate competence as well as remarkable negotiation abilities and a link to a network of prospective customers.
Dissimilar to a passive investor, a wholesaler is responsible for securing the success of an investment. If the wholesaler encounters difficulties in finding a buyer quickly, he/she risks reducing their return, gaining no return, or worse, losing the money they invested on a particular property.
Invest in Home Construction companies
Another real estate-connected investment that could be worth your time and money are firms that are associated with building of homes. It’s an interesting investment for those who trust that building of homes is something that will continue to grow hence growing your business.
Online real estate investment platform
There are a lot of new companies which have cropped up to enable investors get into the real estate investment venture websites like Realty Mogul and Fundrise allows you to invest into residential or commercial real estate investments and obtain liquidity in return. Frequently, the investments made are part of crowd funding, which also allow others to buy property without demanding enterprise capital.
This option is mostly for those with extra money to spare, considering the costs on purchasing large property.
With thorough research and expert advice on the market and specific ways to invest, real estate can be a solid investment. In the long run, your current financial state will determine whether it’s a good investment or not. Just like any other investment, real estate won’t succeed if you invest in what you can’t afford. Additionally, when selected and managed wisely, the above mentioned real estate investment options can offer likely consequential returns and precious asset class multiplicity-without the hassle of, foreclosures, evictions, mortgages, and more. Make sure you understand the time engagement of each option and gauge the capital and attention you have at hand to commit to an investment.