When I talk to people about the benefits of investing in real estate, I often hear this answer: “Yes, but I don’t want to own.”
While I believe that actively investing in real estate 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, owning is not for everyone.
In fact, as I have been busy with my various businesses and activities with my family, I have found myself leaning more and more toward passive real estate investing. At this point in my life, it seems to provide the best return on capital for the time spent on any investment I have made.
So why aren’t more people investing in passive real estate opportunities?
- They do not know the different options available.
- They don’t know how to do the due diligence.
Well, this post will help you with reason number 1.
Here are five ways to invest in real estate without owning it.
# 1 Invest in REIT
Real estate investment trusts (REITs) are companies that own real estate and allow their investors to buy and sell their shares so that the trust can pay dividends and gain value on long-term properties.
REITs can be traded publicly or privately and trade is done in the form of equity and not debt. Most of these companies have multiple favorable properties to generate cash flows that are worth millions or billions.
Therefore, as an investor, you are not the owners directly; you own a part of the company that owns and exploits the properties.
For investors who want to start building a portfolio, going with REITs is an easy way to get started. You can simply do this through your current trading platform. It is also quite liquid as you can go in and out of the investment with a simple click of a button.
However, there are some drawbacks, as many of the direct tax advantages of investing in real estate, such as depreciation, may be lost.
# 2 Real estate syndicates
This is another effective way to invest in real estate without buying any property. In a syndication, investors pool their financial resources to invest in large projects that they could not have bought or managed on their own.
For example, a sponsor may file an agreement to buy an 350-unit apartment building and seek to raise $ 15 million from investors to complete the deal.
As an investor, you invest with a sponsor who joins the deal and manages it. Before you invest, your due diligence should be done and once you are in a deal, you are expected to be up and running all the time.
Depending on the specific characteristics of the offer, they can last between 3 and 7 years. As an investor, your only expectation after making the investment is to check if there is income in your bank account and apply taxes to it every year.
# 3 Invest in real estate funds
Syndications are often considered to be individual properties or offers. A real estate fund, however, will take its capital and invest in multiple properties, all under the fund’s umbrella.
As an investor, invest your capital and fund operators will go out to buy various offers.
Your advantage as an investor is that a single investment results in the diversification of multiple properties and locations. The downside is that rates are usually a bit higher, but that’s the advantage of diversification.
# 4 Investment Note
Notes in simple terms can be called a promise of payment. For example, a personal note in your name is a note. When a property is sold, the promissory note in the document defines the terms of the loan.
While not guaranteed with collateral, the note is considered the safest way to invest in real estate. In this investment, the investor buys the secured debt and becomes a lender. Investors buy discount notes and transfer them to lenders.
You can invest in notes in different ways:
- Performing Note Investing: Buy to hold and buy in the short term.
- Investments in the first place of unprofitable foreclosure and Investments in the second place of unprofitable obligations.
Each of these types is unique in its own way and offers potential for investors who are just starting to buy real estate.
# 5 Debts / Loans with strong money
Strong cash loans are also known as bridge loans and are used for short term loans. Real estate investors who want to finance a project use these loans to get things started. Most domestic fins use this tool to renovate or develop a property so that they can make a profit. Private lenders usually issue these loans.
Aside from offering convenience, these loans offer flexible terms as they are granted by a private lender. Similarly, when it comes to guarantees, it is up to the lender to decide whether you want to give yourself some leeway or not.
If you want to become an investor, you have to consider yourself as a lender and distribute money to the borrowers according to your terms. You can request a fixed fee or percentage depending on your needs.
Make it worth it
Real estate investing is so much more than buying and selling properties. It is a whole industry that offers many ways to get involved according to your goals and your willingness to dedicate time and effort. It is up to you to decide which path you want to take.
The key is to understand how to do proper due diligence with these deals in advance. Because you trust others, it makes sense to understand who you invest with and what you can expect from a performance standpoint.
Different ways to learn to do proper due diligence include educating yourself through books, courses, and lectures. And there is always learning by experience.
If you want to learn how to do proper due diligence in a short amount of time, feel free to check out our course and our community, Passive Real Estate Academy.
How did you successfully invest in real estate without owning it? Comment below!
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