Investing in real estate is almost always a good idea. People will always need housing, and in many markets, housing prices remain stable enough that you can count on rental properties to generate steady cash flow. But buying a rental property isn’t the only way to invest in real estate.
These days, you have choices. You can rent out a portion of the home you live in yourself. You can join a real estate investment group (REIG) or buy shares in a real estate investment trust (REIT). You can use online investment platforms to pool your money with other investors. Let’s take a closer look at some of the ways you can invest in real estate without buying a rental property.
Rent Out Part of Your Own Home
Most people don’t think of their own home purchase as an investment in real estate, but it is. A big portion of your monthly mortgage payment goes right back into your pocket in the form of equity. As you pay off your primary residence, you’re building wealth that you can pass down to the next generation.
Lots of people these days are trying out being a landlord by house hacking, which involves renting out a portion of your house while you’re still living in the other portion. For many, this means renting out spare bedrooms or a finished basement. For others, it can mean buying a duplex and living in one apartment while renting out the other. Some people even get creative with it – for example, you might park an RV in your driveway and move into it on the weekends while renting your house out on AirBnB, or you might move your bedroom into the living room to free up another bedroom you can rent to a tenant. House hacking can help you cover some, or all, of your own living expenses while taking advantage of the concept of appreciation in real estate, which sees your property gain value over time.
Buy Shares in a REIT
If you want to get exposure to real estate in your portfolio but don’t want to buy property, you can buy shares in a REIT. A REIT is a trust or company that uses investor funds to buy and manage income-generating rental properties. The properties might be residential or commercial in nature. In order to qualify as a REIT, a trust or corporation must pay 90 percent of its profits as dividends to investors.
REITs tend to have high rates of return, averaging about 10.6 percent a year in the ten years prior to August 31, 2021. You can buy shares in a REIT on the open stock market, and unlike many real estate investments, you don’t need a huge amount of money to get started – you can begin investing in REITs with $20 or $30 in some cases. You don’t have to deal with the headaches of managing a property, and you can sell them quickly whenever you want, so they’re much more liquid than real property. If you don’t have the skills or time to analyze the performance of specific REITs, you can diversify your holdings even more by investing in a REIT mutual fund.
Join a REIG
A REIG or real estate investment group is a company that either builds or buys a block of rental units, be they apartments, offices, or retail spaces. Individual investors can join the group by buying properties in it. The company manages the investment properties, including advertising vacancies, finding tenants, evicting tenants as needed, and performing repairs and maintenance. The individual investor gets to be hands-off. The REIG also offers some income protection for investors that have vacancies in their units.
Pool Your Money with Other Investors
Thanks to modern crowdfunding platforms like RealtyMogul, Fundrise, and Streitwise, you can pool money with other investors to buy into larger commercial and residential properties. You don’t typically need a lot of money to get started. And, these days, you don’t even need to be an accredited investor to make some types of investments on these platforms.
Diversifying your portfolio with some real estate holdings can be a good thing, but you don’t necessarily need to buy rental properties to make it happen. Even if you don’t have a lot of money to spare for an investment in real estate, investment vehicles like REITs and crowdfunding platforms make it easy for everyone to invest in real estate.