Buying, selling, and upgrading properties is the most common way of real estate investment. However not everyone has the privilege of owning properties, considering the state of the economy right now. However, there are many more ways to invest, in this article you will be knowing 5 more ways to enter real estate, how to do them and if you are suitable for such ventures.
Many believe that property ownership is a must for real estate investing.
It makes sense to assume that direct ownership of a piece of land is the sole option to make a financial investment in real estate. However, there are many real estate investment possibilities available that don’t need property ownership and instead provide good, steady revenue flows with far less upkeep required on the part of the investor.
With these choices, investors may have access to real estate’s numerous advantages, such as rental income from tenants, the potential for appreciation, and diversification into a different but tried and real asset class, all without having to deal with the continuous responsibilities of building upkeep, landlording, and other tasks of property owners.
This article explores five alternative real estate investment strategies that do not require direct property ownership. Individual investors who aren’t ready or prepared to commit to a significant down payment or acquire a large loan for a particular property have many more alternatives thanks to these methods for investing in real estate. The flexibility of investing across various geographies, property sizes, and real estate classifications is attractive to investors who decide to make investments other than those in direct property ownership.
These investment strategies can be a stepping stone to more hands-on investments in real estate, but you may find the profits so attractive that you decide against investing in real estate.
The only active real estate investment strategy that doesn’t need property ownership is wholesale. Instead, it necessitates the will to acquire property. In the wholesaling business, an investor enters into a contract to purchase a property they feel is underpriced to sell to another investment shortly after for a profit. Typically, wholesalers look for properties that need to be renovated and resell them to realtors who wish to remodel the home. They may, however, look for properties that they anticipate would sell rapidly to ordinary customers in a particular property market.
A wholesaler enters into a contract to purchase a house and provides a down payment as earnest money in a wholesale venture. They then strive to sell the house as soon as feasible to a house flipper or homebuyer for a profit. Brokerage fees are to wholesalers who mediate the sale of real estate on behalf of the sellers and buyers. The wholesaler who has agreed to purchase the property is the role of the client, not the general agent.
Wholesale is a high-risk business that requires extensive knowledge of finance, law, and real estate, strong bargaining skills, and access to a network of potential purchasers. The price of the purchase and the date of the sale must reach an agreement with the wholesaler. If the wholesaler finds a buyer fast, a trade may be quite fluid, but if they cannot get a motivated buyer immediately, a transaction could become illiquid.
In contrast to a passive investor, a wholesaler bears more responsibility for ensuring investment is profitable. A wholesaler runs the risk of reducing, not receiving any return on the investment, and even worse, incurring losses on the investment if they have trouble swiftly finding a buyer.
A private equity fund is an investment mechanism in which investors pool their money into a fund that will make investments on their behalf. Typically, this independent organization is run legally as a limited liability partnership with fixed management team members responsible for the fund management. The manager or current supervisors are in charge of the fund’s daily operations, allowing investors to work full-time or seek other opportunities.
Passive investment is one in which the investor provides just cash even if the fund manager is responsible for managing the contributions. An example of this could be investing in real estate through a private equity fund (s). Given that personal equity investment minimums and expenses are sometimes high, it is nonetheless crucial for fund investors to possess the financial and economic estate skills necessary to comprehend the underlying risks and returns for these investments.
Accredited investors and major capitalizing institutions typically have access to private equity funds. Minimum investment amounts vary but are usually at least $100,000. Additionally, they frequently have a “two and twenty” fee structure, where the fund assesses a 2% yearly administration fee and an additional 20% fee on any profits generated by the fund. Due to their high illiquidity, private equity funds are only suitable for investors that have the means to commit substantial sums of money over long periods.
Mutual Funds for Real Estate
A mutual fund, a type of investment strategy similar to the idea of a private equity fund, is a collection of funds from different customers that an investment firm uses to make investments on their behalf. Investors in mutual funds own shares in the fund, even though a mutual fund owns the investments it makes. Mutual fund investors get returns in the form of dividends and share appreciation based on the performance of the fund’s assets. Real estate mutual funds usually invest in REITs, property investment equities, or outright real estate acquisitions. Residential real estate (such as single-family houses and townhomes), commercial real estate (such as offices, storage facilities, and sizable apartment complexes), and industrial real estate are some examples of these choices (For example, warehouses and factories)
Investors can choose from a wide variety of mutual funds. Each has a different fee structure, investment minimum, and real estate diversification degree. Mutual funds often have minimal entry barriers and strong liquidity, making professionally managed funds accessible to regular investors. They are passive investments, requiring simple funds from investors and no management.
It’s also important to keep in mind that this is because mutual fund assets are listed publicly, and fluctuations in the stock market as a whole may have a significant impact on the net asset value of their shares rather than just the underlying worth of assets. Thus it is of the riskiest types of real estate investing.
It’s critical to comprehend the make-up of the fund’s investment portfolio when selecting a real estate mutual fund. While mutual funds are permitted to invest in a handful of sectors and asset classes, Additionally, they are required by American law to invest at least 80% of their assets in the kinds of investments that their names imply. However, a mutual fund’s name might be ambiguous and misleading, which is the investor’s responsibility to acquire the financial knowledge necessary to comprehend the mutual fund’s allocation and make informed decisions. Mutual funds can also be weighted down by high-cover charges, implying they are a more expensive option.
A business that invests in commercial real estate through stock and debt is known as a real estate investment trust (REIT). To enable private persons to invest in real estate as an asset without needing to take on actual property ownership, the REITs emerged in 1960. Investors in REITs possess shares of the REIT, similar to how a mutual fund owns the investments it makes. Depending on how well the debt and equity investments in the REIT perform, investors get returns in the form of dividends. As passive assets, REITs only need cash from their owners.
A REIT must adhere to the legal requirement that at least 75% of its assets must be in real estate and that at least 75% of its gross income must derive from real estate investments. Additionally, it must distribute at least 90% of its taxable income. Income from a REIT that meets these requirements is not subject to taxes at the corporate level. Investors in REITs only pay income tax on dividend income, however.
Private REITs, publicly-traded REITs, and public non-traded REITs are the three subcategories of REITs that can currently be divided depending on investor access.
Private REITs lack SEC registration and are not listed publicly on stock exchanges. Private equity funds have different legal structures, although they are similar in other ways. High net worth authorized investors are often the only ones with access to private REITs. The REIT managers may impose investment minimums, although they are often high. They may also come with exorbitant fees, up to 15%. Private REIT investments, like private equity funds, are often illiquid, limiting their accessibility to affluent investors by necessity.
Publicly traded REITs are listed on the stock market and have SEC registration. The majority of ordinary investors are acquainted with this subset of REITs. Publicly traded REITs have strong liquidity like mutual funds, and unlike mutual funds, they don’t have a minimum investment requirement. This approach has the lowest barriers to entry of any property investment strategy; but, due to the nature of these assets, listed on a public exchange and their inverse link to the public markets, listed companies REITs are also notable for the highest level of volatility.
As a combination of a privately held and a publicly listed REIT, consider a publicly listed non-traded REIT. Although they are allowed with the SEC, non-traded REITs are not exchangeable on a stock market. The management of a non-traded REIT decides who has access to it (s). Non-traded REITs may provide broad access to investors with little or no required minimum investment, or access may be limited to high net worth investors with low required minimum investment.
Non-traded REITs are often illiquid investments with a bad reputation for having hefty costs, despite that that isn’t always the case.
Platforms for Online Investing
Online real estate investing platforms pool the assets of many investors invested on their behalf in opportunities that otherwise would be difficult to find or prohibitively costly to access. Investment options, property kinds, investing minimums, and investor access differs between real estate investment platforms. Platforms for investing in real estate online typically concentrate on a single property type or a mix of residential and commercial properties. Additionally, they provide options to investors to invest in a single property or a diverse portfolio of real estate properties.
In general, real estate investment platforms provide little to no liquidity over the life of the investment’s horizon. Investors ought to do their best to fit their time horizons. There are several limitations on real estate investing platforms, such as hefty investment minimums and certification regulations.
We, at Dolphin Property Investments, syndicate money in order to use everyone’s combined purchasing power to engage in real estate possibilities that otherwise would be out of reach for most investors. We allow qualified and non accredited investors to participate in a diverse portfolio of private or residential real estate around the United States. The lowest investment amount to invest with us is $10, and our redemption plans give investors potential liquidity above and above that of other real estate investing platforms.
Which is the best option for you?
There are more alternatives to building a rental portfolio or becoming a full-time real estate investor. When chosen and handled carefully, the real estate investment choices we’ve detailed here may provide potentially considerable returns and beneficial asset class diversity – without the stress of tenant problems, evictions, foreclosures, mortgages, and more. Whatever choice you select, it’s critical to consider the time commitments involved, the amount of money and time you have to contribute, besides which option best suits your tastes and financial objectives.
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Come join us! Email me at mark@dolphinpi.us to find out more about our next real estate investment.