Perhaps you don’t have huge sum to buy a property, or maybe you’re not interested in the stress of property management.
In this article, I discuss 5 easy ways to invest in real estate without buying property.
1. Invest in Real Estate Crowdfunding
Real estate crowdfunding sources investments from multiple individual investors to fund a real estate project. Once a real estate crowdfunding project is completed and sold, the investor receives their money back plus interest. Some real estate crowdfunding platforms focus on commercial real estate, while others may focus on multifamily apartments.
Groundfloor is my go-to real estate crowdfunding platform. For just $10, you can invest in individual ‘fix and flip’ properties. And if you want to learn how to invest in real estate without buying a property, Groundfloor is probably the most similar investment strategy.
With Groundfloor, the loans are usually less than 12 months in duration, with an average interest rate earned around 10.8%. In addition, the loans are collateralized by the properties themselves, providing greater security for investors.
Benefits of Real Estate Crowdfunding
- Private real estate is less volatile than the stock market
- Tend to have higher returns than publicly traded REITs
- Hand pick your investments based on your risk tolerance
- Low minimum investment and invest more as you get comfortable
- Returns are less closely correlated with the stock market
So if you want to invest in real estate without buying a property, real estate crowdfunding is your best bet. And with a low $10 minimum through Groundfloor, you can start small and invest more as you get comfortable with their platform.
2. Invest in Publicly-Traded REIT ETFs
If you want to invest in real estate without buying property, investing in publicly-traded REITs could be a good option for you.
REITs can invest in multiple classes of real estate or just one class of real estate, for example, mortgages or commercial real estate. Unlike real estate crowdfunding, a REITs share price can fluctuate daily and is more closely correlated to overall stock market movements. Public-traded REITs generally have lower dividends than real estate crowdfunding but offer you can buy and sell your REITs anytime.
A REIT stands for Real Estate Investment Trust. The term is just a tax concept, and as long as a company satisfies a long list of requirements set forth by the IRS, it can qualify as a REIT. An ETF stands for Exchange Traded Fund, which is a basket of securities bundled into one product (the ETF)
However, it’s important to note that when you are investing in a publicly traded REIT, you are investing in the company, which invests in real estate, so you lose the investment flexibility you would have with real estate crowdfunding.
Benefits of REIT ETF Investing
- Buy and sell REITs during stock exchange hours
- Passive diversification through ETF investing
- REITs own and operate their investments (Groundfloor is a platform for multiple borrowers)
- Lower fees than real estate crowdfunding
3. Invest in Non-Traded REITs
Another excellent way to gain real estate exposure is through investing in non-traded REITs. Non-traded REITs are similar to publicly traded REITs, but the many difference is that you cannot buy and sell non-traded REITs the same way you can with publicly-traded REITs.
That said, there are a few differentiating factors that could make non-traded REITs a desirable alternative to buying property. Non-traded REITs generally have higher returns than publicly traded REITs due to their lack of liquidity and the theory that private markets are deemed less ‘efficient.’
In addition, non-traded REITs tend to be less correlated and volatile than their publicly traded counterparts because investors cannot easily buy and sell non-traded REITs.
Benefits of Non-Traded REITs
- Historically higher returns than publicly-traded REITs
- Lower stock market correlation than publicly traded investments
- Most platforms offer multiple investor tools and services
4. Invest in Real Estate Pre-Funding Notes
Real estate prefunding is when a platform provides funding to an investor before a loan is fully invested. After a deal completes due diligence, it can be critical for a project to receive funding as soon as possible instead of the deal sitting dormant.
When you are investing in prefunding notes, you are not directly investing in real estate projects per se, but rather investing in a line of credit that is used to fund loans to investors. ,
Pre-funding is quite common in the real estate industry and is offered by many companies.
Stairs by Groundfloor offers the ability to invest in prefunding notes, and you can earn up to 6% APY with Stairs. Stairs notes automatically repay and reinvest every 5 days. Users can withdraw their funds at any time.
If you are an accredited investor, a better option might be investing in prefunding notes offered by Fund That Flip. The yields on their prefunding notes can reach 9.5%.
The returns are lower than investing directly in real estate because you’re only providing funding until the loan is funded and are not providing on the returns of the real estate project itself.
I have been investing with Stairs for over a year. And so far I and am happy with their product. And 6% APY isn’t bad either.
Benefits of Prefunding Investing
- $ 1 Minimum investment
- Higher returns than an FDIC savings account or CD
- Less risk than stock market investing
- Earn up to 6 % interest pre-funding loans secured by real estate.
5. Invest in Individual Private Real Estate Deals
RealtyMogul allows you to invest in individual office, multifamily, retail, or industrial real estate deals. However, you must be an accredited investor to invest in their individual property deals.
Investment minimums for individual properties range from $25,000 – $50,000, depending on the investment. Through individual property investing, you are taking an equity investment in the project. And within the capital stack, equity investments have the highest risk but also the potential for the highest returns.
RealtyMogul individual property investments have a targeted investment horizon of 3 – 7 years, with no options for early redemptions.
Benefits of Individual Private Real Estate Deals
- Take a directional view of real estate
- Potential for higher returns (but also high risk)
- Invest in properties usually only available to corporations
6. Invest in Single Family Rentals
Through Roofstock, you are buying a single-family rental, but their platform makes the process much more manageable than scouring properties on your own. Through the Roofstock marketplace, buyers and sellers come together to buy and sell their properties.
Most properties are already rented when you buy an individual property through Roofstock, so you can start earning cash flow on the day you close. In addition, Roofstock provides property management services, alleviating one of the most significant headaches associated with real estate ownership.
Their easy-to-use platform allows you the filer through multiple properties based on your requirements.
The main downside is that you are still buying a property, and the associated costs are much higher than investing in REITs or a crowdfunding company like Groundfloor.
Benefits of Single Family Rentals Through Roofstock
- Most properties have tenants so that you can earn income right away
- Property management services reduce the ownership burden
- Roofstock platform allows you to browse and filter properties based on your requirements.