We all know that in order to build wealth and prepare for retirement, investing is the key. However, it can be hard to figure out what to invest in and how to put your money to good use. One of the most talked about ways to build wealth is owning property and being a landlord to bring in passive income. But what if you don’t want to do that? You can still invest in real estate!
How to Invest in Real Estate Without Becoming a Landlord
Just because you want to invest in real estate doesn’t mean you have to be a landlord. In fact, investing in real estate just means owning, selling, or managing real estate for profit, and that includes multiple avenues. Here are some other options that can make money from properties…without being a landlord.
1) Utilize Online Real Estate Investments
There are quite a few online investing companies that allow you to invest in real estate, without the hassle of being a landlord.
Popular options include…
- Fundrise, and
…but there are other growing companies that offer these options as well.
(as an FYI, Derek isn’t a big fan of this method as it’s not very liquid, it’s long-term, and the yields quite often aren’t what’s promised)
Fundrise and Peerstreet work like this:
- You pool your money with other investors to buy and hold properties.
- Once purchased, you make money from those properties when they’re rented out.
- You’ll get paid quarterly dividends, and this is considered a long-term investing opportunity.
- This opportunity is pretty much hands-off, and you won’t manage any of the properties at all.
With these companies, there are a few things to keep in mind. For one, the minimum startup investment for these online investments starts at $500. They also charge management fees, and while they vary, the fees start at around .15% annually.
If you’re not ready to invest $500 (or more) just yet, that’s okay. There are plenty of other ways to invest in real estate, like my favorite option.
REITs (also known as real estate investment trusts) are income-producing commercial real estate companies.
The best part about REITs?
You can invest in them multiple ways…
- including directly,
- through an ETF (exchange-traded fund), or
- through mutual funds.
You can also invest in different types of REITs, although many are commercial properties. But, there are equity REITs (residential) and mortgage REITs (mortgage loans) as well.
Unlike sites like Fundrise, you won’t “own” the buildings when you invest in REITs. Instead, you’re investing in a company that owns these properties or invests in these properties.
So, how do you go about purchasing REITs?
3) Invest In Construction
Did you know that you can invest in real estate by investing in the construction of new homes? With homebuilders developing new neighborhoods, rebuilding old neighborhoods, and more, now is the time to invest in construction.
Large homebuilders like LGI Homes (LGIH) are publicly traded construction companies, and you can invest in them just like you would any other stock. You can even use an app like Robinhood or M1 Finance to make stocks and fractional shares easy to watch and manage.
4) Flip Homes
Prefer to renovate, but don’t want to manage anything long-term? Flipping homes can offer you that, especially if you’re handy.
Now, that’s not to say that flipping homes doesn’t require a heavy investment (it does), but, if you’re capable of flipping homes yourself, you can learn to profit fast, and use the money from your sales to invest in the other options on this list.
Where I live, you can buy a home for as little as $30,000 (I live in the Midwest). However, the city is growing, and growing fast, and there have been many people who have been able to flip homes and make thousands more than they put into the properties. For example, my neighbor purchased a $40,000 2 bedroom 2 bathroom home, spent his free time fixing it up, and sold it 15 months later for $140,000.
- He bought it at the right time,
- in the right neighborhood, and
- was able to turn the worst house on the block to one of the best.
Just remember, if you go this route, there are some things to keep in mind, like the fact that taxes (like the capital gains tax) add up. There are loopholes and ways to work around these taxes, but of course, you’ll need to talk to a professional and make sure you do everything legally. Don’t have the IRS coming after you because you didn’t know or follow the rules!
5) Use A Property Management Company
While this technically would make you a landlord, at least you’d be able to be hands off. Hiring a property management company to manage rental properties for you could be a great way to earn passive income and have the freedom to invest, without the hassle of managing others.
The best part of this is that you could use other methods of home owning too, like…
- house hacking,
- buying a multi-unit property so you can have multiple tenants, or even
- renting out your property vs. selling it if you decide to move.
A property management company can handle tenants, repairs, and other items, and you can just sit back and collect your money.
The biggest con to using a property management company is that they do take a percentage of your property income. The percentage will vary, but the average is around 12%. In other words, if you make $1,000 in rental income, they will take $120. Other companies may charge a flat rate, so that’s an option if you don’t want to pay a percentage based fee.
Are You Ready To Invest In Real Estate?
As you can see, there are multiple ways to invest in real estate and diversify your portfolio, without having to actively manage rental properties. And, many of these options can be low cost as well, which is perfect for new investors to dip their toes in.
What is your favorite way to invest in real estate?
AUTHOR Kimberly Studdard
Kim Studdard is a strategy consultant and course launching expert. When she isn't spending time with her daughter and husband, or crying over This Is Us, you'll find her teaching other mompreneurs how to scale their business without scaling their workload.