Cynthia Measom
·4 min read
When you think of investing in real estate, you might envision purchasing a property to rent, or buying and flipping a home. Yet, both of those options put you on the financial hot seat because you have to come up with a down payment and closing costs, which typically ranged from 7% to 17% of the sale price in 2021, according to the National Association of Realtors. On top of that, you’ll pay closing costs, which Bank of America estimates between 3% and 5%. Plus, you’ll have either the responsibility of being a landlord or dealing with the headaches of fixing and flipping a property.
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The good news is that you can still invest in real estate — you just won’t actually own the property. Here are five expert-approved ideas to help you get started.
Wholesaling
“One of the most common ways real estate investors invest in real estate without owning any property is through a method called wholesaling,” said Colby Hager, CEO of Capstone Homebuyers. “This is when you have a contract to buy a property, but instead of buying, you sell your right to the contract to another investor for a fee. Wholesaling can be done with lower amounts of capital because you don’t actually purchase the property, which is one reason it is taught to so many would-be real estate investors.”
Subleasing
“A more creative way to actually invest in real estate without actually owning property is to lease a property with a one- to two-year lease and then subsequently sublease the property for use as a short-term rental or STR,” Hager said. “This can be done when the property is located in an area conducive to short-term rentals but is being offered for lease long term. An investor wishing to follow this strategy must do their diligence and make sure they aren’t breaking their original lease by using this investment strategy.”
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REITs
“You don’t have to directly own real estate to profit from the upward trends in the market right now,” said Deidre Woollard, real estate expert at The Motley Fool. “One of the best ways to diversify within the vast world of real estate is to buy real estate investment trusts (REITs). Publicly traded REITs can be bought just like other stocks on public markets. They are subject to a few special rules including that they have to pay out 90% of taxable income to shareholders in the form of dividends. REITs cover a wide range of real estate from industrial warehouses to apartment buildings, so you can diversify within the real estate space. Over the long term, REITs can outperform the general S&P 500.”
Crowdfunding
“Real estate crowdfunding enables the connection between investors and real estate developers without needing to actually own property,” said Andy Kolodgie, owner of Cash Home Buyers Georgia. “As an investor, you would be funding real estate development projects in return for equity in the project along with distributions. There are several online crowdfunding platforms, but unlike REITs, the investment is long term, making the investment less liquid.
“Crowdfunding used to have a higher barrier to entry (investors typically had to be accredited), but online platforms are changing that. Search online for some of the larger competitors in the crowdfunding space such as Fundrise, which does not require investors to be accredited to get started.”
Partner With Other Investors
“You can passively invest in real estate by partnering with other investors,” said Brian Davis, a real estate investor and founder at SparkRental. “The classic model to do this is through real estate syndications, but those typically only allow accredited investors to participate.”
Be the Bank and Get the Return
“There are quite a few ways to invest in real estate without owning a property, and one that I always recommend when someone asks me is to be a money lender,” said Nicky Taveras, owner of DNT Home Buyers. “Getting loans is not the easiest or most convenient for a lot of people because it has to do with income, and credit. However, if you have a lot of cash, and know a few real estate agents you really trust, you can be their hard money lender.
“Depending on where you live, you don’t even need to be an agent to invest in real estate, so if you know a few people who have been wanting to get into the industry without dealing with buyers, sellers or even being a landlord, being the bank might be a good option. The goal is to lend money for a transaction that is short term. This isn’t for the traditional purchase of a home for someone to live in, but for a home that is going to be flipped, then sold after that.”
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Jami Farkas contributed to the reporting for this article.
This article originally appeared on GOBankingRates.com: How To Invest In Real Estate Without Owning Property
I am an experienced real estate enthusiast with a comprehensive understanding of various investment strategies in the real estate market. My knowledge is grounded in both theoretical concepts and practical application, having successfully navigated the dynamic landscape of real estate investments. I stay updated on industry trends, market fluctuations, and innovative approaches to wealth creation within the real estate sector.
Now, diving into the concepts discussed in the article by Cynthia Measom on investing in real estate without owning property:
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Wholesaling:
- Wholesaling involves having a contract to buy a property, but instead of completing the purchase, you sell the right to the contract to another investor for a fee.
- This strategy requires lower amounts of capital compared to traditional property ownership.
-
Subleasing:
- Subleasing is a creative approach where an investor leases a property with a one- to two-year lease and then subleases it for short-term rentals.
- This method requires careful consideration to ensure compliance with the original lease terms.
-
REITs (Real Estate Investment Trusts):
- Investors can profit from real estate without directly owning property by investing in REITs, which are publicly traded on stock markets.
- REITs cover a diverse range of real estate assets, offering a way to diversify within the real estate space.
-
Crowdfunding:
- Real estate crowdfunding connects investors with developers without the need for direct property ownership.
- Investors fund real estate development projects and receive equity in return, with online platforms reducing barriers to entry.
-
Partnering with Other Investors:
- Passive real estate investment can be achieved by partnering with other investors, often through real estate syndications.
- Real estate syndications may have restrictions, typically allowing accredited investors to participate.
-
Being a Money Lender:
- Investors can act as money lenders, providing funds for real estate transactions.
- This strategy involves lending money for short-term transactions, particularly for properties intended for flipping and resale.
These approaches offer a spectrum of options for individuals interested in real estate investment without the direct responsibilities and financial commitments associated with property ownership. Each method has its own considerations and risk factors, emphasizing the importance of thorough research and due diligence before embarking on any investment journey.
