Investing in real estate doesn’t always mean buying a rental property and becoming a landlord. Indeed, there are many different ways in which you can make money from properties without ever buying or managing one. The most important benefit of such approaches is that they usually allow investors to make passive income and require minimal real estate knowledge and experience. If you are looking for the best way to grow your capital in 2020, here are 6 strategies to invest in real estate without owning physical assets.
6 Strategies To Invest In Real Estate
1. Real Estate Syndication
One possible way to invest in real estate passively without going through the process of buying a property is to take part in a real estate syndication. This is a partnership which can take various legal forms such as a limited liability company (LLC), a limited partnership, a corporation, and others. There are two primary parties to the syndication: a syndicator (also referred as sponsor) and investors.
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The aim of real estate syndicates is to pull the financial resources of numerous investors together in order to buy real estate properties under their common ownership. All the legwork is done by the syndicator who can invest as little as 5% of the property price. However, the sponsor invests a lot of time and effort as he/she is responsible for finding good deals, buying properties, and managing them.
Meanwhile, the investors need to just finance the purchase of the assets, after which they can enjoy passive rental income. Real estate syndication is a great way to own real estate properties without having to research markets, conduct property search, analyze their investment potential, and deal with tenants.
2. Real Estate Crowdfunding
The second strategy for investing in real estate without dealing with actual properties is real estate crowdfunding. This is a relatively novel real estate investment strategy whose emergence and rapid growth were enabled by the advancement of technology and social media.
Crowdfunding real estate is yet another way to own shares in properties together with other investors. However, with this approach a typical investor owns a significantly smaller part of a property and invests together with a large number of others from across the globe.
Real estate crowdfunding platforms such as Fundrise, RealthyShares, and Realty Mogul bring together the money of dozens or even hundreds of small individual investors to buy and manage common real estate assets. In this way even common people can own shares in big commercial real estate projects in order to receive dividends and capital gains. Importantly, some of these websites allow investors to participate with as little as $500.
The idea of crowdfunding real estate assets came from the traditional passive real estate investing strategy of buying shares in real estate investment trusts (REITs). REITs own, manage, and finance income-producing real estate assets.
Investing in REITs works very similarly to investing in stocks. Investors buy shares in order to receive regular dividends and also benefit from capital gains. An important difference between REITs and crowdfunding platforms, nevertheless, is that the former usually requires a significantly higher initial investment. In most cases people are expected to invest at least a few thousand dollars to join a REIT.
4. Private Money Loans
If you have some extra cash and are looking for a way to invest in real estate without buying a property, you could finance the projects of other investors. Becoming a private money lender is yet another strategy for making money from real estate without property ownership and property management.
Extending private money loans is a rather informal strategy which entails giving money to your relatives, friends, colleagues, or other acquaintances so that they buy investment properties. Because you have a personal relationship with the borrower, these loans are very flexible. The terms and conditions are whatever you agree on with the person whose project you are funding.
In general, however, the terms of private money loans do not exceed more than 5 years. Depending on the arrangements between the investor and the borrower, the lender can receive regular monthly repayments or get his/her money all at once at the end of the lending period.
5. Hard Money Loans
Another way to invest money in real estate by lending to those buying actual properties is in the form of hard money loans. These loans are much stricter than private money loans. Hard money lenders lend money to any real estate investor (not someone they know), and the loan is underlie by the real estate assets which the borrower is buying, referred to as hard assets.
The term of hard money loans usually lasts between 2 and 5 years, and there are strict interest rates which are higher than those of mortgages. However, many investors who cannot qualify for a mortgage go for this option. Alternatively, this allows people with enough cash to become institutional investors and make money from real estate without buying and managing a property themselves.
6. Real Estate Wholesaling
Wholesaling is the last way to for invest in real estate without owning a property highlighted in this article. Unlike the previous methods, this is a very active strategy for making money in real estate. A real estate wholesaler has to find a distressed property for sale and contract the property. Then, he/she needs to market the property to homebuyers or real estate investors who are willing to pay a higher price than the sale price. Finally, the wholesaler transfers the contract to the buyer.
The money which a person makes from wholesaling real estate is the difference between the sale price and the purchase price. The wholesaler never actually owns the property. The trick is to be an excellent negotiator to achieve the best possible prices at both ends of the deal. Moreover, you have to possess comprehensive knowledge of the local real estate market and business to be able to find properties below market value and to locate buyers quickly.
The diverse opportunities is one of the best features of the real estate investing world. You don’t even need to buy and manage a rental property to make money in this industry. To invest in real estate without owning a property, you can try one of the 6 strategies above.