Investing in Real Estate: Turning a Profit Without Buying a Home

Written by Posted On Tuesday, 20 November 2018 15:39

When it comes to investment tactics, there are normally two primary routes you can take. You can choose to allocate your funds into a stock market portfolio, where they’ll be divided into myriad assets that will ebb and flow over time. Or, you can invest in real estate properties that ultimately reap you more reward than you put into them.


Most experts will agree that while the stock market can be unpredictable, real estate investments are normally a solid move given that you’ve vetted the property beforehand and know you can improve its value. Yet, investing in real estate isn’t without its challenges. One of the chief concerns is that of property management. Unless you’re planning to live in the homes yourself, you’ll most likely wear the hat of the landlord, overseeing the tenants who occupy the property and pay you to rent them.


While this can be an ideal way to generate a passive income stream, it also means that you’re the go-to person for all repairs, maintenance calls and expenses that the home incurs during its lifetime. The good news? If you love the idea of making money in real estate but aren’t necessarily looking to manage a physical property, you can still dip your toes in the water. Today, let’s take a look at two primary ways you can invest in real estate, even if you never purchase a home.


The Real Estate Equity Route

One way you can earn money from real estate is by investing in real estate investment trusts, or REITs. Though ideally, real estate investments of any kind should only comprise around 5% of your total portfolio, it makes sense to put your money where the most profitability lies. To this end, an REIT can be an excellent addition to your wider portfolio, especially if you work with a broker or financial advisor who can lead you toward the most historically well-performing ones.


Similar in structure to an index fund only for the real estate sector, an REIT represents a publicly-traded company that owns properties that generate income. These are grouped into securitized portfolios that offer investors both the profit-generation capability of the real estate market, along with the flexibility and liquidity that stocks generally afford.


When it comes to REITs, you’ll be dealing with large-scale divisions that typically own a slew of properties, from office buildings to apartments and even shopping malls. While these structures are designed to generate a profit and the potential is indeed greater, so too is the risk. This is because, at their core, REITs operate as stock investments. While there can be some major gains in some areas, unless you’re an expert at scouring the market for trends that turn into gains, you’ll need the assistance of an online resource, such as that provided at Otherwise, an investment that looks good on paper and sounds like a deal at the onset can quickly sour, leaving you wondering when the next uptick will take place .


In general, publically-traded REITs are niche-focused. This might be geographical in nature, or industry-related. For instance, one might be concentrated in the Los Angeles area, while another might have the market cornered on high-security hotel properties.


Regardless of the area of concentration, the reality remains that if that particular area suffers a loss, the REIT could be directly impacted. To help mitigate that risk, investors can look into REITs available through an Exchange-Traded Fund (ETF) or even a mutual fund setup. This arrangement can help spread out an individual's market exposure, making a hit in one section less damaging overall.


One of the most well-known real estate ETF options is Vanguard’s, which is represented as VNQ. On the other end of the spectrum, there has also been a recent surge in new online investment platforms, such as Rich Uncles, that allow users to invest small amounts of money in lesser-known properties. These can often be a more palatable way to research and get involved in this area of diversification without taking on the risk of a larger managed fund. Curious investors should keep in mind that while these lesser-known online platforms can generate a profit, they are ultimately illiquid, meaning that selling them can be a challenge. Still, those who utilize these offerings find that they afford investors a more hands-on approach to real estate. With the online route, you can often see the properties you’re putting your money toward, whereas when you invest in an ETF, you are usually unable to see what your money is going toward.


Profitability via Payment: Acquiring Real Estate Debt

Though investing in a mortgage might sound like the least appealing concept, it can render a reward to savvy investors willing to try it out. Through a platform known as PeerStreet, investors can browse high-interest loans and decide to back them. The company itself purchases the mortgages directly from private lenders, and updates its list daily. Browsers can narrow down the selection by choosing real estate loans by term, yield and more.


The catch? As deemed by the Securities and Exchange Commission (SEC), this platform is only accessible to accredited investors who earn an income of more than $200,000 per year. Though these offerings are expected to expand in the future, for now the limited use functions as a safeguard to ensure the investments are consistent.


Investing in Real Estate the Smart Way

While you could purchase a property, pour money and sweat into it and flip it for a profit, doing so repeatedly can be taxing and tiring. The same holds true for owning and maintaining homes that aren’t yours to live in. This is why it’s wise to review other ways to invest in the real estate. Both real estate equity and real estate debt can be leveraged in this capacity. Talk to your financial advisor about whether any of these routes would work for you and how you can take the next steps forward to grow your earnings, diversity your portfolio and learn more about the first-hand benefits of this type of investing.

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