Best Tips to Invest in Real Estate without Buying Property
Most of the people believe that investing in real estate is possible only when you purchase the property. But that’s just a misconception. Owning property is not the only way to invest in real estate as there are numerous other lucrative options available involving less maintenance and offering steady cash flows.
We have shortlisted these ways after conducting an in-depth Executive Search Real Estate. So, explore these five ways to invest in real estate without involving direct property ownership.
It is an excellent form of active investing in real estate that does not need property ownership. Rather, you need intent of property ownership.
Wholesaling is a sort of property-flipping process where an investor has to sign a contract to purchase property, which is underpriced. The property is then sold immediately to another investor at a higher rate to earn a profit. Most of the times, such an investment is made by wholesalers having enough fund to make such investments. They then intend to sell the property as quickly as possible to a homebuyer or house-flipper.
However, it is a slightly risky investment that needs a great deal of legal, financial, and real estate proficiency as well as strong connection to buyers and excellent negotiation skills.
Private Equity Funds
Another kind of investment in real estate is private equity funds. In this investment, the investors pool money together into a fund that is expected to make investments on behalf of the entire group. Such a private affair is legally operated like a limited liability partnership. A fixed management group or manager controls every aspect of the fund.
It is a passive kind of investment where investors have to offer only capital and leave duties of investment management to fund managers. But it is still wise investors to have complete knowledge and understanding of returns and implicit risks involved in such investments.
Real Estate Mutual Funds
The option of investing in a mutual fund is almost similar to investing in a private equity fund. Even in this kind of investment a company pools together the money of its clients for investing on their behalf.
As an investor, you can earn returns on a mutual fund in the form of share appreciation and dividend, based on the performance of investments. Real estate mutual funds can usually invest in real estate stocks, REITs or direct purchases from real estate. Such options can include commercial real estates like storage units, office buildings, industrial real estate like factories and warehouses, and residential real estates like townhomes, single-family houses, and more.
There are varieties of mutual funds available each having its own level of diversification, fee structure, and investment minimum. These funds usually offer low barriers to high liquidity and entry, offering ordinary investors access to professionally-managed funds.
An important thing to note is that mutual funds are publicly traded, and hence, the net asset value of such shares is highly correlated to the fluctuations in the public market. Hence, it is one of the most volatile real estate investment options.
It is a new kind of investment available through the opportunity zone program established in 2017 under Tax Cuts and Job Act. This program intends to stimulate private investment in economically weaker areas in exchange for capital gains tax incentives for investors.
Out of three investments that qualify for opportunity fund investments, one of them is real estate. It can offer investor capital gains tax incentives like the 1031 exchange. In order to avail the capital gains incentives, the investors must invest before 2022 and must hold the investment for at least 10 years.
Some of the capital gains tax incentives that investors can earn are:
- Capital gains tax deferment
- Capital gains tax elimination
- Capital gains tax reduction
REIT or real estate investment trust is an entity that makes equity or debt investments in commercial real estate. REITs were established in 1960 in order to offer individual investors access to invest in the real estate as an asset, without involving any direct property ownership.
Just like mutual funds, REIT investors also share REIT. Investors can earn returns as dividend depending on the REIT equity and debt investment’s performance. It is a passive investment that needs capital from investors.
As per law, it is mandatory to invest at least 75% of assets in real estate and gain at least 75% of gross income from real estate investments. Also, it must distribute a minimum 90% of taxable income to the shareholders.
Presently, REITs can be broken into three categories:
- Publicly Traded REITs – These REITs are traded on the stock exchange and are registered with the SEC.
- Privately Traded REITs – These are unregistered REITs with SEC ad not publicly-traded on the stock exchange.
- Public Non-Traded REIT – It is a blend of a publicly traded and private REIT.
Online Investment Platforms
There are multiple online real estate investment platforms available that pool investments from numerous investors and invest on their behalf in opportunities that are either too expensive or difficult to invest. The real estate online platforms offer a range of such investment offerings, property types, investment minimums, and investor’s access.
Such platforms either focus on a combination of commercial and residential real estate or a single property. Also, investors can choose a single property or a diversified portfolio. Usually, such investments offer no or little liquidation for a certain duration. Most of these investment platforms carry restrictions, including accreditation requirements and high investment risks.
Which is the Best Option for You?
If you don’t wish to buy a property and gain ownership of property then there are numerous ways to make an investment in the real estate. You can go for an executive search real estate and add varieties of options to your portfolio. If you are able to manage them wisely then you can gain potentially great returns without the hassle of tenant troubles, mortgages, evictions, foreclosures, and more.
Before making a final investment, do assess the time scale of each option, risks involved, the money involved, and determine the option that best meets your financial goals and personal preferences.