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Invest In Real Estate Without Buying A Property, Know-How?
Real estate investing is an excellent way to diversify your portfolio and diversify your income sources. However, not everyone is interested in purchasing and flipping houses in order to rent them out, or in maintaining property and tenants. If you want to invest in real estate without the commitment or hassle of purchasing property, there are other ways to invest in real estate that offer just as consistent returns.
Investing in real estate may seem like a lucrative and alluring idea, but getting started in real estate investments is the toughest thing, owing to the reason that it requires a huge amount of capital. While it is easy to presume that the only way to invest in real estate is through direct property ownership, the fact is that there are several other real estate investment opportunities that do not actually involve property ownership yet offer enormous and stable cash flow.
With these investment options, investors can reap the benefits like rent from the estate’s tenants, capital appreciation, and get their portfolios diversified into an alternative, but tested asset class. And all of this, without having any ongoing responsibilities of building maintenance, being landlord, and many other obligations that property owners usually have.
This article will help you get knowledge over the parallel realm of real estate that deals with investing in real estate without buying a property.
What Are The Different Ways of Real Estate Investment?
It is now a trend to invest in real estate, not the traditional way but the conventional way that is without becoming the landlord. It has been futuristically predicted that the growth factor and prosperity in the real estate market will flourish immensely. Hence, it is the right time to invest in housing properties without dealing with landlord-related work and tenant issues.
Let us look at ways through which you can invest in real estate without buying a property.
1. Fractional ownership
Another investment platform is fractional ownership. It enables investors to buy a portion of a property so that they can get all the perks of owning a property without the upfront cost and any ongoing hassles. This concept is more suitable for prime assets in commercial real estate where the risks are really high and an individual investor may not be able to afford the entire property.
Investors can put in fractions of elite commercial properties and earn a steady rental yield and build long-term wealth. It is emerging as an investment avenue for the enthusiastic middle class and retail investors, an asset collection known chiefly for institutional investments. This model has been widespread in Europe and the US and is now picking up momentum in India as well.
2. Online investing platforms
Online real estate investment platforms collect money from many investors and invest on their behalf in opportunities that would otherwise be difficult or hugely expensive to find or have access to.
These investment platforms range widely in investment offerings, types of property, investment minimum amounts, and investor access offered. These online investment platforms either focus on a single property or a combination of residential and commercial properties. And more often, the investments that the investors make are part of crowdfunding, a way for others to be able to buy property without requiring venture capital.
However, this medium of investment is best for those investors who can afford to leave their investments uninterrupted for an extended period of time.
3. Flipping houses
Flipping houses involves purchasing a property, repairing and renovating it (if required), and reselling it for gain. Flipping houses is in most ways similar to wholesaling but the key difference is that in wholesaling, the investors don’t have to repair it. They can sell it right away for a profit considering the market conditions, demands, etc.
To get high profits, investors typically purchase properties that present a lower price than what the markets offer or buy from those owners who are in dire need of cash. After taking ownership of the property, the investors quickly start to search for prospective buyers by advertising their property.This way, they earn revenue in the form of a fee that is associated with the transaction, typically a certain percentage of the total property cost.
This field requires explicit knowledge of real estate asset types, their values, and the market. A skilled investor flips various properties without wasting any time and is always on the search for suitable properties to purchase.
4. Invest in a real estate focused corporation
There are numerous corporations that own and manage real estate without actually operating as a REIT. The difference is that they might pay a lower dividend than a REIT.
Companies of this sort include hotels, resorts, timeshare associations, CRE developers, etc. Make sure to conduct due diligence before purchasing stock in individual companies. This option can be a great one if the investor wants exposure to a particular type of real estate investment and has ample time to research all the details pertaining to the company and the investment.
5. Alternative Investment Funds (AIFs)
AIFs, basically invest in startups, nascent-stage venture funds, infrastructure funds, real estate, and more. According to the SEBI, AIFs are privately merged funds that can either be open-ended or close-ended, depending on the class.
While AIFs are more profitable than mutual funds, they require a substantial minimum investment of INR 1 crore and as a result, are ideal for High Networth Investors(HNIs).
6. Real estate partnerships
It is one of the most common ways to invest in real estate, with each person taking over different responsibilities. Often, this can be opted as a way to buy property at a lower price. Individuals can set up terms such as – paying the debt or perhaps handling the down payment for the asset. Depending on the terms of the partnership, a person may be investing in real estate without actually putting too much hands-on work of owning property.
7. Invest in Real Estate Exchange Traded Fund – ETFs:
It is a collection of stocks or bonds in a single fund that is similar to mutual or index funds with the advantage of lower costs and broader diversification. Many ETFs are available in the market that provides ample exposure to the real estate market after considering all prospects and thorough research in the field.
8. Invest in Real Estate Mutual Funds:
Just like ETFs, you can also invest in mutual funds. Again, it comes with lower costs and huge benefits.
9. Invest in REITs:
People invest in REITs, as this is an added advantage to investing in real estate without acquiring the property. It helps in diversifying holdings and also supports non-correlation with any other type of equities. It also provides the right kind of exposure to the real estate industry without being a landlord. One needs to make sure that a consumer must always opt for publicly related REITs instead of going for non-traded REITs. A few factors to consider while investing in REITs are liquidity, fees, transparency, risk, and value.
Don’t miss: A Beginner’s Guide To Investing In REITs.
10. Invest in a Real Estate Focused Company:
Many companies are not actual REITs but own and manage real estate. The difference between both options is that the consumer needs to search and scrutinize various options before looking for the right company and a lower amount of dividend, which needs to be paid. These companies can be hotels, resorts, commercial real estate developers, etc. This requires a lot of time to research historical data, history, and other major details of the company.
11. Invest in Home Construction:
There are plenty of prospective options to invest in home building and investing in the construction site of the real estate industry, a smart move. It is forecasted that there will be a boom in household construction in the coming years.
12. Hire a Property Manager:
It is advisable to hire a property manager to do all the heavy work regarding managing the real estate business and to lead him to maximum exposure towards the real estate business. Property managers save a lot of time and effort from the investor and take care of the rental property like repairs, rent collection, vetting tenants, etc. They act as a medium of communication between the owner and the tenant, and it helps the investor to focus more on his profits and other personal and professional opportunities.
13. Invest in Real Estate Notes:
One of the best options for investment is not to buy a brick and mortar building; instead, the investor buys Real estate notes, which are profitable. These can be purchased from a bank also.
14. Hard Money Loans:
If the investor does not want to invest in real estate, he has a great option of providing hard loans and earns interest on it. The advantage is not to become a landlord but to be a creditor offering hard money loans to other investors in real estate. This golden opportunity also offers a high return on investment. These are direct loans, and it fetches him a minimum of 12% interest return on his money.
15. Invest in Online Platforms for Real Estate:
Online real estate investment platforms pool funds from multiple investors and invest on their behalf in opportunities that would otherwise be prohibitively expensive to pursue. These vary greatly in terms of investment offerings, property types, and investment minimums. The online platforms, which focus on both residential and commercial real estate, allow investors to invest in a single property or a diversified portfolio of real estate. The medium, on the other hand, is best suited for those who can afford to leave their investments unbroken for an extended period of time. There are many online websites like Assestmonk through which investors can involve themselves in the real estate industry with the least of chances to get physically involved in this business.
16. Investing in Wholesaling Houses:
It is similar to changing homes, but the owner is not with the investor, and he does not have to bear any maintenance cost. The only difficulty is to find the appropriate real estate property and to sell it for maximum profits.
17. Real Estate Crowdfunding:
You may have heard the term “crowdfunded real estate” but not fully comprehended what it meant. Here’s one way of looking at it: Assume that real estate developers decided to construct an apartment complex. They have two options: they can seek financing from a lender such as a bank, or they can turn to a group of individual investors. If they go with the individual investor option, that’s when you come into play. A large group of people invests in a specific project through real estate crowdfunding. As an investor, you will either fund or raise capital for a real estate project alongside other investors and real estate companies.
Because you can choose the property you want to invest in, the risks are low and the projected returns are high, up to 20%, especially if the property is in a high-growth residential area in a developing city.
In case you aspire to be a part of the real estate sector but still want to stay away from the struggles of being a landlord, you can choose to try investing through any of the above-mentioned mediums. However, for complete amateurs, it is always advisable to get themselves well equipped with the necessary knowledge and do enough homework before venturing into this field of real estate investing without actually buying a property.
It is a trend these days that investors and real estate facilitators invest in commercial properties to maximize their income and returns on their investments. It is a highly lucrative business that invites heavy investment opportunities from the stakeholders and, in return, the opportunities to explore vast opportunities within the real estate market and fund other personal and professional businesses are much higher. Commercial real estate investment is quite different from residential real estate funding in which the investor has umpteen options to invest in and earn maximum profits.
Assetmonk is a WealthTech platform that offers real estate investment options in major cities like Bangalore, Chennai, and Hyderabad, with IRR ranging from 14 to 21%.
CRE Investing Without Property FAQs:
Many companies that have initiated this profitable investment to help investors buy and get involved in formed groups to finance real estate without getting actual ownership of the property. They let out funds and capital to invest into commercial real estate or residential properties and in return they receive regular cash flow and multiple distributions in return.
This kind of investing is quite similar to investing in REITs wherein the money is pooled in as cash from different investors who collectively take benefits of the singled-out platform from where they operate and function.
The cash pooled in and invested may be used for purchasing commercial real estate, apartments or buildings, warehouses, infrastructure and much more. Consequently, they derive the benefit of the dividends and multiple distributions of their investments which also converts into long term appreciation of the buildings that have been purchase using their capital, but no ownership was gained. This relieved them from the headache and fuss of the maintenance and upkeep pf the property.
Hard money loans are the best way to invest in properties and commercial real estate without taking he headache of keeping the ownership of the property. When a stakeholder has enough cash and capital to lend and he does not want the liability of being the landlord, all he has to do is to lend it to another investor who works on the property. This way the lender gains maximum exposure, a great ROI – Return on Investment thus saving on a lot of time, inconvenience and effort. Hard money loans are direct loans to a real estate investor and in return a handsome rate of interest is attained as a profit. Normally these loans are given out to people they know instead of lending a huge amount of money to strangers.
So, it is a great strategy to invest in property without attaining ownership of the same.
Going by the experience of many investors, it is a sound option as the rate of profitability is quite high and the hassle of physically acquiring a property is nil. May have shared a positive response after purchasing real Estate notes from known and credible people and from banks at purchase prices which are much lower than what a retail investor would pay.
When the investors don’t have the time or patience to physically deal with real estate, it is better for them to hire professionals as property managers and acquire their expertise in managing their asset. The benefits of hiring a property manager are as follows:
- Experience and expertise
- They have the mindset of an investor and act like one
- They have incredible patience to deal with situations which the owner normally loses
- Aggressiveness and professionalism are the basic qualities
- Strong PR and communication skills make them apt for the job
- Their organizational and leadership qualities help in managing the entire hierarchy of employers
- They are quite flexible and tech savvy
ETFs are Exchange Traded Funds which are kinds of bonds or stocks purchased by the investors in leir of CRE purchases without ownership. REITs are Real estate Investment Trusts that invest in hotels, office buildings, manufacturing units etc.