9 Top Options for Investing in Real Estate Without Buying Properties


Last year’s housing market was one of the record ones, with gains largely driven by shrinking inventories and extraordinarily low mortgage rates. For certain parts of the world, home prices rose well above 10% on average.

But it’s not just the major coastal cities that are seeing massive growth. GoBankingRates’ study showed that many of the fastest growing cities were inland, including: Buffalo, New York (34.6 percent), Atlanta, Georgia (24.54 percent), and Cincinnati, Ohio (20.6 percent).

Having that in mind, you might be considering whether you should put your money on the line and invest in real estate β€” or if you’re too late. You might also ask whether you should invest in real estate in the conventional sense β€” as in becoming a landlord.

Now, this is the positive thing: not only is it still a good time to invest in real estate as more development is expected to be on the way, but there are now more opportunities than ever to invest in housing without engaging with renters or other minutiae of landlord life.

Here are some of the best options right now:

1: Invest in real estate ETFs

An exchange-traded fund, also known as an ETF, is a set of shares or bonds of a common portfolio. ETFs are similar to index funds and mutual funds in that they come with the same broad diversification and low costs around the board.

If you are angling to invest in real estate but still want to diversify, investing in real-estate based ETF may be a good decision. Vanguard’s VNQ, for example, is a real estate ETF that invests in securities sold by real estate investment trusts (REITs) that buy office buildings, hotels and other forms of properties. IYR is another real estate ETF that works in the same manner as it offers direct access to domestic real estate stocks and REITs.

There are a lot of other ETFs that offer access to real estate, too, so make sure you do your homework and weigh the possibilities.

2: Invest in real estate mutual funds

Even as you can invest in real estate ETFs, you can invest in real estate mutual funds. Taylor Schulte of Define Financial in San Diego, says he swears by a mutual fund known as DFREX. Why? Because his low costs and track record make him feel comfortable about his potential returns. In addition to low prices, Schulte notes that the DFREX approach is supported by decades of rigorous work by Nobel Prize-winning economists.

TIREX is another real estate mutual fund to be considered with $1.9 billion in funds, large diversification of real estate portfolios and small fees.

3: Invest in REITs

Investors invest in REITs for the same purpose as they invest in real estate ETFs and mutual funds; they prefer to invest in real estate without holding tangible properties. REITs let you do exactly that, thus diversifying your portfolios on the basis of the sort of real estate class in which each REIT invests.

Financial planner Chris Ball of BuildFinancialMuscle.com told me that he actually invests in REITs for diversification and non-correlation with other forms of equity. He says that given the usual mood fluctuations and ups and downs of the real estate market, he likes long-term results.

In his viewing of the situation, this also gives him access to real estate without being a homeowner. Ball also notes that many of his clients agree with the stance and, as a result, invest in REITs as part of their portfolio.

That being said, I generally recommend that clients keep away from non-listed REITs and purchase only publicly traded REITs instead. The U.S. Securities and Exchange Commission (SEC) has recently released a notice against untraded REITs, stating that their lack of liquidity, high costs, and lack of interest disclosure pose unnecessary risk.

4: Invest in a real estate business

There are several businesses that own and operate real estate without functioning as a REIT. The downside is, you’re going to have to work to find them, so they will pay a smaller dividend than the REIT.

Firms that are based on real estate can include hotels, resort owners, time-sharing firms and commercial real estate developers, for example. Be sure you do due diligence before purchasing shares in individual firms, but this alternative may be a nice one if you want to be exposed to a particular form of real estate investment and have time to study historical statistics, business history, and other information.

5: Investing in home construction

If you look at the rise of the real estate market in the past decade or so, it’s easy to see that much of that is the product of a limited inventory of homes. For this cause, many expect that the building of new homes will continue to boom over the next few decades or more.

In that way, it’s easy to see that investing in the construction sector might also be wise. After all, the whole homebuilder sector will continue to create new developments and rehabilitate existing ones, and now might be a perfect time to step in.

Big homebuilders to watch include LGI Homes (LGIH), Lennar (LEN), D.R. Horton (DHI), and Pulte Homes (PHM), but there are a lot more to learn on your own.

6: Employ a property manager

Because you don’t have to buy actual properties to invest in real estate, there’s at least one tactic that will help you get your cake and eat it. Many buyers who want to be introduced to the residential properties they can see and touch go ahead and buy rentals, but then employ the property manager to do all the heavy lifting.

Lee Huffman, a travel and lifestyle blogger at BaldThoughts.com, once said he owns a rental property in North Carolina but currently lives in California. Although at first seeking to handle his assets from a distance, he eventually decided to partner with the property manager to keep his mind sane and save earnings.

While he spent more than 8-10 percent of the gross rent on his manager, it was always one of the greatest choices he’s ever made as a real estate developer, he notes. Why? They take care of the necessities of rental property-small maintenance, testing potential renters, receiving rents – so that the property owners can concentrate on their job, health, and finding the next lucrative venture in rental property.

In that way, without all the hard work, Huffman gets the advantages of becoming a landlord. One of the most important positions a property manager plays is to serve as a bridge between the tenant and the owner. The later will not get unwanted calls, messages or emails from renters at all hours of the day or night. The trick to ensuring that this approach succeeds is to ensure that you only invest in properties with enough cash flow to pay for the property management and also maintain a good rate of return.

7: Invest in real estate notes

Real estate notes are a form of property that you can purchase if you’re interested in investing in real estate but don’t really want to deal with brick-and-mortar houses. When you’re trading in real estate notes through a brokerage, you’re usually buying bonds at rates that are far below what a regular buyer would look for.

In the past, I have invested in real estate notes through an individual investor I know who buys and renovates properties. So far, my experience has only been good. However, do your due diligence to make sure you realize what you’re walking into, if you’re investing in real estate notes through a bank or a real estate developer who’s aggressively exploring new assets.

8: Hard money loans

If you don’t want any of the other concepts on this page but have money to lend, you should even try offering a hard money loan. Jim Wang of WalletHacks.com says he’s now investing in real estate with this plan because he needs publicity but doesn’t want to bother with becoming a landlord. He also claims that the ROI (return on investment) for his time will not be as big as other incentives as his time is precious.

Hard money loans are basically a direct loan to a real estate lender, he notes. Wang provides real estate loans to a borrower he meets in person and, as a result, earns a 12 percent return on his investment. Wang says he’s comfortable with the set-up as the donor is someone he likes, but he’s not sure he’s going to be comfortable with an outsider.

This way, hard money lending directly to real estate buyers is another tactic to try whether you want to invest in real estate but don’t want to deal with land and the headaches that come with it.

9: Invest in real estate online

Last but not least, don’t worry about all the latest businesses that have sprung up to help investors get interested with real estate without making their hands dirty. Websites such as Fundrise and Realty Mogul allow you to invest in commercial or residential real estate projects and earn cash flow dividends in return.

Investing with any business is close to investing in REITs as the capital is combined with cash from other investors who take advantage of the platform. The cash you spend will be used to buy rental property, commercial real estate, apartment houses, and more. At the end of the day, you get the value of dividends and bonuses and a long-term view of the assets you own. Although neither company has been around for that long, they’re both doing well so far. Fundrise returned a total of 11.4 percent of the dollars invested in 2017 net of fees, and 9.11 percent in 2018 after all, and you don’t have to be an authorized investor to open an account.