5 Ways to Invest in Real Estate, Without Actually Buying Your Own Real Estate
July 20, 2017
Investing in real estate is known globally as a smart and relatively safe investment, depending on current market conditions and your understanding of the area in which you’d like to invest. The trouble is, a real estate investment requires a significant amount of capital and isn’t as widely available as other investment vehicles like funds and equities. So, how do you get into the real estate market if you don’t have the required deposit?
While buying property is the main way to invest in the real estate market, it certainly isn’t the only way. Investors can enter the market through several methods with the added bonus of not having to manage property and tenants, dealing with construction and developers, or worrying about permits and regulations.
Many less ‘hands-on’ investment opportunities and strategies exist, so that investors without great purchasing power and property investment expertise can compete. Below are five of these competitive, ‘non-property’ investment opportunities.
Utilizing Private Equity Real Estate Funds
As an asset class, private equity real estate funds consist of equity and debt investments in property and pool capital from qualified and institutional investors. In this strategy, a management team deploys assets to take advantage of multiple investment opportunities. So, you’ll be able to use the team’s purchasing power and expertise while participating in the real estate asset class. However, you’ll be charged performance and management fees. Performance fees are a percentage of eventual profits while management fees are a percentage of the assets.
Investing in Public Equity
If you’re a retail investor and wondering how to get into real estate, stocks are a great way to give yourself exposure to the market. Purchasing public equity from companies that specialize in real estate strategies and development for your portfolio means you’ll be invested in the real estate market without having to invest in property itself. These types of stocks are also a great way to diversify your investment club portfolio.
Harnessing the Power of Online Investment Platforms
Many real estate investment opportunities can be accessed online via real estate platforms. However, only accredited investors have access to them. But, these opportunities are “direct access”, meaning you can invest without any fees or the need for a fund manager or broker. However, a buyer’s agent might be able to provide some advice and expertise, even if you’re looking for investments online. All you’ll have to do is find a reputable online investment platform, which is much easier and quicker than attempting to purchase property.
Using Real Estate Investment Trusts
Real estate investment trusts (REITs) are a type of security that often trade on public exchanges and provide exposure to the real estate market through investing in property or mortgages. You can buy and sell these trusts in the form of securities, akin to mutual funds, which allow investors to buy and sell baskets of public equity.
Ninety percent of their taxable income is in the form of dividends to shareholders, because they’re not just businesses that own real estate; they also provide cash flow to their investors. Typically, these dividend yields can be quite high.
REITs can be a smart investment because they’re able to provide investors with a very liquid stake in real estate.
Investing in real estate directly is like investing in a private company; you’re buying a stake in a specific property. You must follow the terms of the projects you’re investing in, as they’re set up as private entities. This means you must meet their accreditation standards and be aware that there are restrictions placed on retail investors. However, if you invest directly, then you won’t need a manager, meaning you’ll avoid any fees associated with this service. However, ideally, you’ll want to hire a buyer’s agent or real estate money manager, as their experience could help you avoid the major issues that come along with direct investments.
When it comes to investing in real estate, there’s a method to suit every style of investor. These options make it possible for investors to dedicate just a portion of their portfolio to real estate, thus maintaining diversification, enjoying the liquidity that the various opportunities provide, and not committing to the amount of time and management that traditional real estate ownership requires. As a bonus, investing in something other than property may give you more knowledge of the overall market and a new perspective on how it operates before you take the plunge and purchase your own home or property.