Ways to invest in real estate

5 Ways to Invest in Real Estate Without Buying Property

Ways to invest in real estate

There are many ways to invest in real estate without directly purchasing property. Many investors will want to participate in this asset class without the headaches that come with owning and maintaining property, dealing with tenants and developers, enduring construction delays, and facing regulatory risks concerning local, state, and national interests. Purchasing real estate for rental income entails understanding the current and potential market of the area, renting the property, maintaining the property, and aligning expenses like mortgage and property improvement with rental income. This is typically a very hands-on investment process in comparison to investing in stocks or bonds.

Real estate by its nature requires expertise in property maintenance and the implementation of a strategic investment goal. These goals can be very diverse – a quick flip of the asset by investing in exterior and interior improvements, a long-term investment in the development of commercial properties, and the investment in office space in developing markets can all be strategic investment goals. In order for investors to participate in these different real estate opportunities, various financial vehicles and structures exist. For investors that lack the purchasing power to develop shopping malls in the mid-west or buy farmland in China, structures are set up to pool investor capital and deploy these funds into different real estate strategies. This opens up opportunities for individuals to invest in real estate without actually purchasing property. Below are some vehicles and strategies investors can utilize to allocate to real estate.

(1) REIT’s: Real estate investment trusts are companies that own many different forms of real estate. They can be categorized by different investment strategies, but all REIT’s allow investors to buy and sell them in the form of securities, similar to how mutual funds allow investors to buy baskets of public equities. REIT’s must pay out at least 90% of taxable income in the form of dividends to shareholders. Depending on the structure, REIT’s can be traded on a public exchange or set up as a private investment.

(2) Private Equity Real Estate Funds: These investments typically pool investment capital from institutional and qualified investors. A management team will deploy assets to take advantage of different real estate investment strategies. In this way investors can participate in the real estate asset class while taking advantage of management team expertise and purchasing power. In exchange for the manager’s work, investors are charged a management fee as a percentage of assets and a performance fee as a percentage of eventual profits.

(3) Real Estate Online Investing: Digital platforms afford investors the ability to access real estate investment opportunities online. These opportunities are generally only available to accredited investors. Certain platforms allow direct access into the real estate opportunity so that investors can bypass fees associated with having their investments pass through middlemen such as  brokers and fund managers. Fundrise, Realty Mogul, and RealtyShares are just some of the leading real estate online investment platforms.

(4) Direct Investment: Direct investment into a real estate opportunity has its advantages in that fees associated with money going through middlemen are mitigated. However, the expertise of professional real estate money managers can offer advantages and hedge against significant risks inherent in these investments. These investments are similar to investing in private companies, where restrictions are placed on retail investor participation. The organization of these real estate projects as private entities requires that investors meet accreditation standards.

(5) Public Equity: Retail investors can purchase public equity from companies that specialize in real estate strategies. For example, China HGS (ticker: HGSH) traded on NASDAQ is a Chinese-based company which, through its wholly-owned subsidiary, develops large-scale and high-quality commercial and residential projects in China. The ProShares UltraShort Real Estate fund (ticker: SRS) seeks daily investment results corresponding to the inverse of the Dow Jones U.S. Real Estate Index, which is the measurement of performance of the real estate sector of the US equity market. Through public equity, investors can invest in strategies directly related to different real estate opportunities.

 

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  • Dan Hendo
  • Emirati

    I am certainly looking for financing in a property in Dubai, United Arab Emirates as there is a constant need for traveler living space and also somewhere to be chances for villa price rise.I personally aim my maximum pay out to generally be no more than $90,000. My objective is to let home out as shot-range visitor guest house,and the main objective being long-term property price increase. Afterwards having completed few early inquiries on real estate market of Dubai I uncovered me personally thinking about to invest in villas for sale in jumeirah golf estates because here are few restrictions on outsiders having house throughout United Arab Emirates versus many other Gulf Nations around the world home prices still appears to be relatively cheap presently there as compare to European real estate market I shall set maintenance of the home in the management of native property management company who accountable for furnishing and maintenance of villa along with this receiving payment; and conducting guest reservations. In Dubai there is a year-round need from visitors; and the Dubai real estate market would still seem to good scope about better return on investment.

  • mark henry

    Thank you for sharing such wonderful information. Real Estate is not just a business but locals are seeking this to have their own property. I found an another link which may help in knowing more about the way to have own property in SC

  • As I read this article, it is very realistic for every person who wants to be involved in the Real Estate world. Thanks for sharing this one, it sure will help other with this info.

    • Grace

      Hi Rod, thanks so much for the kind words, we’re glad to hear that you found our article to be helpful!

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  • Even though I am just starting to gather info about real estate investing and still deciding on which angle to take I wanted to say I found your article to be helpful. Thank you.

    • Grace

      Hi Michael,

      Thank you for the kind words and we’re glad to hear that our post has been helpful. Best of luck in finding your angle in real estate investing!

      Best,
      Grace

  • Jordan Pasternak

    Brad,

    Thanks for reading and providing some great professional insight.

    Regards,
    Jordan

  • Brad Case, PhD, CFA, CAIA

    Nice summary, Jordan.
    (1) Public equity can be REITs in the U.S.; REITs or similar companies outside the U.S. (for example, in France they’re called SIICs); real estate operating companies (REOCs); mutual funds that specialize in REITs and/or similar companies; and ETFs that specialize in REITs and/or similar companies.
    (2) A brand-new alternative is the FTSE NAREIT PureProperty Index Series, which enables investors to target real estate returns not just by country and property type but also by region (East, Midwest, South, West) and region/type combination (e.g. East Region Office). Also, investors who don’t want to be exposed to as much leverage as REITs use can reduce or eliminate leverage using the Property version of the PureProperty indices. There are not yet ETFs based on the PureProperty indices, but investors (especially institutional) can replicate them. (Disclosure: I’m the co-inventor.)
    (3) Institutional investors can get real estate returns by investing in swaps, forwards, or other derivatives based on the PureProperty indices.
    (4) Finally, it’s important to point out that the performance of private equity real estate funds has been really, really bad over the 25+ years for which data are available. Open-end core funds have systematically provided returns worse than direct investment; opportunistic funds have been very risky and have provided poor returns on a risk-adjusted basis; and value-added funds have been the worst of the lot, in effect combining the poor returns of core funds with the high risks of opportunistic funds.