If you’re interested in investing in real estate but don’t want to be a landlord, there are several investment options. These can include real estate investment trusts (REITs), crowdfunding and rental property syndications, among other strategies. This approach can help you build passive income and increase wealth. Here are 10 common strategies that you could consider.
A financial advisor can help you create a real estate portfolio by analyzing investments and managing them.
Real Estate Investment Trusts (REITs)
Real Estate Investment Trusts (REITs) offer a way for individuals to invest in large-scale, income-producing real estate without having to buy or manage the properties themselves. REITs are traded just like stocks, making them a highly liquid investment. They often focus on specific types of properties, such as commercial real estate, apartment complexes or healthcare facilities. Investors can benefit from the regular income generated by the properties, distributed as REIT dividends, and from potential appreciation in the value of the REIT’s shares.
Real Estate Crowdfunding
Real estate crowdfunding enables groups of investors to participate in larger projects that would typically be out of reach for individuals like residential developments or commercial properties. The returns can come in the form of rental income, interest or profit-sharing.
Real Estate Mutual Funds
Real estate mutual funds invest in a diversified portfolio of real estate-related assets like REITs, real estate development companies and property-related stocks. This spreads risk across different asset types and markets, and professional management oversees the fund’s assets. Investors gain exposure to the real estate market with the added benefit of diversification and liquidity, as these funds can be bought and sold like any other mutual fund.
Hire a Property Manager
Hiring a property management company to oversee your rental property lets you collect rental income without worrying about maintenance or tenant issues. These companies handle everything from marketing and tenant screening to rent collection and repairs, typically charging a fee based on a percentage of the monthly rent. While there’s a cost involved – and you’ll still technically be a landlord – the convenience and professional management can make it a worthwhile investment, especially when you take advantage of rental property tax deductions.
Real Estate ETFs
Real estate exchange-traded funds (ETFs) are traded on stock exchanges like individual stocks. They typically track the performance of a specific real estate index, offering investors exposure to a broad range of real estate assets. One of the advantages of ETFs is their liquidity, as they can be bought and sold throughout the trading day at market prices. Investors in real estate ETFs also benefit from diversification and lower expense ratios compared to mutual funds.
Private Real Estate Funds
Private real estate funds pool money from accredited investors to invest in real estate assets. Unlike public REITs, these funds are not traded on public exchanges , but offer the potential for higher returns along with higher risks and lower liquidity. These funds often have lock-up periods during which investors cannot withdraw their capital.
Real Estate Notes
Real estate notes are debt secured by real estate. Essentially, you are investing in a mortgage or a loan tied to a property. As the borrower repays the loan, you receive interest payments. Real estate notes can offer attractive returns,but come with risks, such as the possibility of default.
Real Estate Syndications
Real estate syndications involve a sponsor or syndicator handling the property acquisition, financing, and management, while a group of investors provide the capital. Investors in real estate syndications typically receive returns through rental income or when the property is sold. Syndications require careful consideration of the syndicator’s experience and the specific terms of the investment.
Hard Money Lending
These are short-term loans to real estate investors for the purpose of property renovation or development. These loans are often used by developers who need quick access to capital. Hard money lenders can earn high-interest rates, making it an attractive option for investors seeking strong returns. However, hard money lending carries risks for borrower default and the illiquid nature of the investment.
Turnkey Properties
Turnkey properties are fully renovated homes or apartments managed by a third-party company that handles all aspects of property management This option is particularly appealing for out-of-state investors or those looking for a passive investment.
Bottom Line
To invest in real estate without being a landlord, decide if you prefer pooled investments like crowdfunding or syndication, or a fund such as a REIT. Pooled investments involve multiple investors sharing ownership, while REITs are publicly traded funds that own real estate. Consulting a financial advisor can help clarify your risk tolerance, long-term goals, and investment strategy.
Tips for Real Estate Investing
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A financial advisor can work with you to identify real estate investment opportunities. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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If you want to know how much an investment could grow over time, SmartAsset’s investment calculator could help you get an estimate.
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