Experts: 5 Best Ways To Invest in Real Estate Without Buying Property

Bet_Noire / Getty Images/iStockphoto
Bet_Noire / Getty Images/iStockphoto

Real estate remains a solid investment, especially as housing prices in many regions remain high. Finance expert Barbara Corcoran recently predicted that a drop in interest rates, whenever that occurs, could cause housing prices to surge by as much as 20%, GOBankingRates recently reported.

Check Out: Is Barbara Corcoran Right About the Housing Market?

Read Next: Become a Real Estate Investor for Just $1K Using This Bezos-Backed Startup

If you have some extra cash and want to diversify your investment portfolio, you might consider real estate. But investing in property has some inherent drawbacks.

“Real estate has traditionally been very difficult to invest in for several reasons, chief among them illiquidity, large minimum investment, the unique nature of properties, and monitoring and upkeep required,” said Robert R. Johnson, professor of finance at the Heider College of Business.

Even if you have the down payment for a house or commercial property, you’ll have to decide if you want to fix-and-flip or rent and manage the property. Both require work, market knowledge and a time investment.

Fortunately, Johnson pointed out, “There are methods for investors to more easily access the real estate markets.”

We spoke with multiple experts to analyze some of the best ways to invest in real estate without buying property.

YieldStreet and Other Private Market Investment Platforms

YieldStreet is a private market alternative investment platform that gives investors access to real estate and other opportunities to build a diversified portfolio. While YieldStreet’s real estate offerings may be limited, you can begin with a minimum investment of just $10,000. That’s less than the standard down payment on most homes. Terms can be as short as 18 months.

Fundrise is a similar service with varied offerings that include real estate, but you can get started for as little as $10. You do not need to be an accredited investor to work with Fundrise, while YieldStreet reserves most of its single asset opportunities for accredited investors.

Learn More: Why a Billionaire Bought a Bunch of Homes In Duluth, Minnesota

Arrived, Ark7, Lofty.AI and Other Crowdfunding Platforms

This spring, Jeff Bezos launched Arrived Homes, a platform that allows virtually anyone to passively invest in single-family properties on a crowdfunded basis. Brian Davis, cofounder of SparkRental.com, told GOBankingRates, “At a $100 minimum investment, Arrived makes it easy to passively investment in single-family properties. You can choose between long-term rentals, short-term vacation rentals, and a fund that holds single-family homes.”

You can withdraw capital in as little as six months, but you’ll face a 2% penalty in the first year — and 1% after that — unless you hold your investment for at least five years.

Davis reported he’s been happy with his returns so far. “I’ve invested in 17 properties with an average dividend yield of 4.2%,” he said.

Similar platforms, including Ark7 and Lofty.ai, offer similar fractional real estate investment opportunities.

Real Estate Syndications

Real estate syndications follow a similar concept as crowdfunding platforms, but they are typically headed up by a professional real estate investor who understands the market and has a track record of success, Davis said.

“Real estate syndications have changed the way I think about real estate investing, supercharging my returns while minimizing my labor,” he wrote.

With a minimum investment of just $5,000, SparkRental.com makes investing more accessible to the middle class.

“As a financial investor, you don’t have to do any labor, and don’t make management decisions,” Davis wrote in the post. “Most real estate syndications aim for high returns (15-30%+) and come with full real estate tax benefits.”

REITs

Many professional investors swear by the convenience, liquidity, and profitability of real estate investment trusts, or REITs.

“REITs are companies that own or finance income-producing real estate across a range of property sectors,” explained Abby McCarthy, SVP of investment affairs for Nareit. “They offer investors exposure to a wide range of properties — from traditional real estate like apartments, retail centers, and industrial complexes to modern-day real estate like data centers, cell towers, and self storage facilities — while providing a steady stream of high dividends, liquidity, transparency, competitive returns, and portfolio diversification.”

Johnson pointed out that there are three types of REITs:

  • Equity REITs, which derive income from the rental or sale of properties.

  • Mortgage REITs, which invest in mortgages or mortgage-backed securities, and earn returns on the interest.

  • Hybrid REITs, which invest in both property and mortgages.

“Many equity REITs specialize in a particular market segment, while others specialize in a particular geographic area,” he said. “REITs trade just like shares of stock on major stock exchanges.”

ETFs

Exchange-traded funds (ETFs) focused on REITs provide another avenue for investors to take advantage of a profitable real estate market.

An ETF invests in a collection of REITs, providing even greater diversity and similar liquidity. “Some ETFs that invest in REITs are currently trading between $50 and $100 dollars, so just $100 dollars can give everyday investors access to all the benefits that REITs and commercial real estate offer,” McCarthy said.

Bottom Line

Passive real estate investing offers the benefits of a bullish real estate market without the drawbacks of being a landlord.

“When investing in physical real estate, the properties need to be managed, so the owner either needs to do it herself or hire a property manager,” Johnson said. “The holder of shares in a REIT, for instance, doesn’t get a call in the middle of the night because a property needs a new furnace or the plumbing is clogged.”

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This article originally appeared on GOBankingRates.com: Experts: 5 Best Ways To Invest in Real Estate Without Buying Property

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