While owning property can certainly be lucrative, it comes with a lot of potential downfalls too. What if your apartment complex needs a new roof? Will that office building require more management than you have time for?
Fortunately, there are still ways to invest in real estate and make money without buying property. Here’s a look at the top strategies.
Invest in Real Estate Mutual Funds or ETFs
One of the more straightforward ways of investing in real estate without owning property is to buy publicly traded shares of companies in the real estate sector. Rather than just investing in one or two companies, you can diversify your portfolio by purchasing mutual funds or ETFs (electronically traded funds). Mutual funds and ETFs are investment pools managed by a professional. Each fund is a mix of different investments so you don’t put all your eggs in one basket, so to speak. As long as the fund is well managed, you decrease the risk you would take on by investing in only a few companies.
Take Advantage of REITs
To round out your investment portfolio, you may want to also invest in real estate investment trusts (REITs). In addition to helping to diversify your portfolio, REITs tend to come with lower risk, high performance, and good long-term stability. REITs are categorized by the type of real estate involved, such as retail, healthcare, office, or residential properties. Your financial planner or wealth manager can help you select the right real estate investment trusts to balance your investment portfolio with the level of risk you feel most comfortable with.
Invest in Construction
Investing in construction is one way to ride the real estate wave, whether by buying stocks in the construction industry or investing in a related business. There are different objectives here, based on your geography and how big you want to go. If you’re not interested in purchasing stocks from the largest homebuilders and want to invest locally, think about what’s hot in your area. Some cities are doing a lot of rehab, for example, while others are expanding with new construction.
Own a Business Related to Real Estate
The intersection of real estate and technology means there are more businesses than ever that are related to property ownership that don’t necessarily involve holding a deed. Top real estate-related opportunities include:
- Timeshare selling
- Property staging
- Real estate photography
- Painting, designing, and flipping
- Escrow management
- Real estate brokerage
- Real estate websites
If owning one of these types of business is still more than you want, consider buying shares in them.
Consider Being a Hard Money Lender
After the last economic recession, the real estate market became even more creative, largely in response to banks tightening their lending standards. One type of loan that has become much more common over the last decade is what is known as a “hard money” or “private money” loan.
A hard money loan is a direct loan to someone investing in real estate. This gives the loan recipient an alternative to traditional bank loans when they want to act quickly on a property or when they wouldn’t normally be considered for a regular loan, such as a foreign investor without a US credit profile or someone who is self-employed. Hard money loans are usually asset-based, meaning that they are guaranteed by the property itself as collateral.
If you have cash to invest, consider becoming a hard money lender. You’ll typically see a solid return on your investment and gain exposure to the real estate market without having to own property yourself.
If you’re thinking about making this type of real estate investment, be selective in whom you choose to support. While you may be uncomfortable giving a total stranger a large sum of money, it can also be awkward investing in properties owned by friends.
One solution is to work with an experienced broker that can find you investment opportunities that fit your investing style and vet potential borrowers. An experienced borrower can help you mitigate risk and has the expertise and local knowledge required to tell a bad deal from a good investment.