5 ways to invest in real estate without being a landlord
When I talk to people about the benefits of investing in real estate, I often hear the answer, “I would, but I don’t want to be a landlord.”
While I believe actively investing in real estate through owning rental properties is a proven way to create wealth and cash flow, it is certainly not the only way to reap the benefits of real estate investing. And honestly, being a landlord isn’t for everyone.
Indeed, as I became more involved in my various endeavors and activities with my family, I became more inclined to invest passively in real estate. At this point in my life, it seems to offer the best return on investment for the time I have spent on every investment I have made.
Why aren’t more people investing in passive real estate opportunities?
1) They don’t know about the different options available to them.
2) They don’t know how to do proper due diligence.
Well this post will help you with reason # 1.
Here are five ways to invest in real estate without being a landlord.
1) Invest in REITs
Real Estate Investment Trusts (REITs) are companies that hold real estate and allow their investors to buy and sell their stocks so that the trust can pay dividends over the long term and earn value on the real estate.
REITs can be either publicly or privately traded, and trading is conducted in the form of equity rather than debt. Most of these companies have several cheap cash flow generating properties valued in the millions or billions.
As an investor, you do not own the real estate directly. You own a stake in the company that owns and operates the properties.
For investors who want to start building a portfolio, getting started in REITs is an easy one. You can easily do this through your current trading platform. It’s also pretty liquid as you can easily get in and out of the investment with a simple push of a button.
However, there are some drawbacks as you may miss out on many of the direct tax benefits of investing in real estate, such as depreciation.
2) Real Estate Syndication
This is another effective way to invest in real estate without buying a property. With syndication, investors pool their financial resources to invest in large projects that they could not have bought or managed themselves.
For example, a sponsor might come up with a deal in which they buy a 350-unit home and seek to raise $ 15 million from investors to close the deal.
As an investor, you are investing with a sponsor who will put the deal together and handle it. You are expected to do your due diligence before investing, and once you’ve closed a deal, you should be on the go all the time.
Depending on the specifics of the business, they can run for anywhere from 3 to 7 years. As an investor, your only post-investing expectation is to look for funds into your bank account and collect taxes on them every year.
3) Invest in real estate funds
Syndications are often viewed as individual properties or deals. However, a real estate fund takes its capital and invests in several properties, all under the umbrella of the fund.
As an investor, you invest your capital and the fund operators buy multiple deals.
The advantage for you as an investor is that a single investment leads to diversification across several properties and locations. The downside is that the fees are often a bit higher, but that’s the tradeoff for diversification.
4) Note investing
Notes in simple terms can be called promises to pay. For example a personal check-in, your name is a note. When a property is sold, the promissory note includes the document along with the terms of the loan.
Although not backed by collateral, the debt security is believed to be the safest way to invest in real estate. In this investment, the investor buys the secured debt and becomes the lender. Investors buy bonds at a discount and then pass them on to lenders.
You can invest in banknotes in several ways:
- Performing Note Investing – Buy to hold and sell long-sell-short.
- Non-performing first-line investing and non-performing second-line investing.
Each of these types is unique in its own way and offers the potential for investors starting out with real estate.
5) Debt / Coin Loans
Hard money loans are also known as bridging loans and are used for short-term loans. Real estate investors looking to fund a project use these loans to get started. Most house flippers use this tool to renovate or develop a property so they can make a profit. Private lenders often make these loans.
These loans not only offer convenience but also flexible terms as they are issued by a private lender. Similarly, it is up to the lender to decide whether or not to give you leeway.
If you want to become an investor, you must pose as a lender and spend money on borrowers on your terms. You can request either a share or a fixed percentage, depending on your needs.
Make it worth your while
Real estate investing is much more than buying and selling real estate. It’s an entire industry that offers a multitude of opportunities to get involved according to your goals and willingness to invest the time and effort. It is up to you to decide which path to go.
The key is to understand how to conduct proper due diligence with these deals in advance. Since you are relying on others, it makes sense to understand who you are investing with and what to expect from a return point of view.
You can easily learn how to do proper due diligence by educating yourself through books, courses, and conferences. And there is always learning from experience.
If you want to learn how to do proper due diligence in a short amount of time, visit our course and our community, the Passive Real Estate Academy.