Here are three simple strategies to invest in real estate without screening tenants, swinging hammers, or soliciting sellers.
Invest in REITs
REITs are Real Estate Investment Trusts that are publicly traded on the stock exchange. Investors purchase shares of large firms that develop and own properties. REITs are easy to find, have low minimums, and are fairly liquid investments. As a fund, REITs invest in multiple projects so you won’t be able to review specific properties. Instead, you are investing in more of an index-fund across commercial real estate sectors.
REITs are one of the easiest ways to invest in real estate, but they have their disadvantages. For starters, as REITs perform more like an index fund, you won’t get to select specific companies or investments. Also, tax benefits are factored in prior to dividend payouts, which are taxed as ordinary income and could increase your overall tax liability.
Become The Bank
Lending isn’t just for big banks. Individuals can provide private loans to real estate investors and hold the promissory note to generate passive returns. These loans are usually backed by the real property, providing some assurances in case of a default. Private loans are common for short-term holds, such as a fix and flip project.
In addition, you can invest in long-term existing mortgages. According to Daphne Wilson of Note Newbie Investor Education, “mortgage note investing is real estate investing without property management.” Investors buy notes and borrowers simply make their monthly payments directly to the investor, instead of the bank.
Invest with Others
Partnering with other investors can be done through a joint venture or a real estate syndication. Real estate syndication is the process of pooling money together between active and passive investors to buy a commercial property. As an example, instead of 10 people investing $100,000 to buy and manage 10 separate properties, they pool those funds together and use $1,000,000 to buy an apartment complex.
Real estate syndications have two groups, active investors and passive investors. Active investors are called general partners and handle all aspects of buying and managing the property. Passive investors or limited partners invest equity and simply earn a return on their capital. Unlike REITs, investors are able to review specific deal details before investing.
Syndications provide cash flow, appreciation potential, and depreciation that can lower your tax liability. However, these deals are not as liquid as REITs, typically have longer hold periods, and require higher minimums. These deals are shared through private offerings, so to evaluate these opportunities, you need to connect with a real estate syndicator.
