3 Easy Ways to Invest in Real Estate (Without Buying Real Estate)


When most people think about investing in real estate, they think of buying a home and renting it out. But, as I've found, being a landlord comes with plenty of less-than-desirable trade-offs. The good news is, you can invest in real estate without actually buying any property.

The downsides of being a landlord

Believe me, leasing out a house or apartment that you own is no picnic. Even when you purchase a perfect property in a pleasant place and screen for the right renters, you could be hit with surprises. I had to replace the ceiling in a home I own when an old radiator malfunctioned. Tenants have locked themselves out and needed my spare key. I've even had tenants just decide to stop paying the rent for a few months. Hiring a property manager could relieve the mental fatigue, but it also eats into your profits.

Let's not forget, purchasing a prime piece of real estate presents an entirely different set of challenges. Getting a mortgage from a traditional bank requires a mountain of paperwork. Investment properties generally require a 20 percent down payment, and the process to locate and purchase the right property can be lengthy and time-consuming. While the financial benefits of leasing out your property are numerous and often attractive, the lifestyle component may stop some from taking the plunge.

Want an alternative? Check out these three options.

Real estate investment trusts (REITs)

REITs are companies that own or finance income-producing real estate. Anyone can buy shares in publicly-traded REITs, just like you would any other stock. You can invest in REITs by buying shares in a particular REIT directly through an open stock exchange, or by investing in exchange-traded funds (ETFs) or mutual funds that specialize in real estate.

When investing in REITs, you get all the benefits of capitalizing on real estate profits without the hassles of fixing leaking toilets, settling neighborly disputes, or chasing tenants for rent checks. The REITs do that for you and split the profits in exchange for your investment.

Because REITs don't have to pay federal taxes as long as 90 percent of the profits are distributed to investors as income or dividends, REITs also tend to experience higher yields overall. (See also: 4 Ways to Protect Your Retirement from Inflation)

Real estate partnerships

In this scenario, you could work with a group of investors and other real estate professionals to tackle projects under the banner of a partnership or limited liability corporation. The business entity would purchase real estate and employ a property manager to oversee daily operations.

This type of structure can work well and allow would-be investors to avoid the less glamorous work common in landlord circles. However, the arrangement should be set up with qualified legal guidance. A partnership agreement or written operating procedures should clearly define everyone's roles and responsibilities from the beginning.

Peer-to-peer lending platforms

Peer-to-peer lending platforms allow investors to lend money without the use of traditional financial institutions. But, typical P2P loans are usually not tied to collateral, and that might make some investors anxious.

Instead, if you want to invest in real estate, try Ground floor, a platform that caters specifically to real estate investment. It combines the higher-yield advantages of peer-to-peer lending with the security of a collateralized investment for non-accredited investors — people like you and me. According to their website, their averaged annual returns are 10 percent. Loans are typically short-term — between six and 12 months.

The world of real estate-backed crowdsourcing is growing and changing rapidly. As this type of investment matures, more players will likely emerge. CrowdDD is an independent community of investors that ranks and reviews real estate crowdfunding platforms based on personal investment experience. This can be a helpful tool to review before making any investment decisions.

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