Are you a real estate investor? If the answer is “NO”, then: Have you ever thought about buying a rental property? If the answer is “YES”, then: What is it that prevented you from going for real estate investing? Is it the lack of cash? This cannot be an excuse because you have the option to take out a mortgage loan from the bank and the possibilities to do real estate investments with no or little money. Is it the lack of enough knowledge? This cannot be the real reason either because being a real estate investor is not actually a profession; there is no such thing as a college degree in Real Estate Investing (at least not at most colleges and universities); it’s something that you learn on your own (through various real estate investing resources) and over time (through experience in the field).
Is it then the unwillingness to deal with all the problems associated with buying a rental property and then owning it, managing it, and renting it out? We admit – this process can be quite off-putting for many people when they think about becoming a real estate investor. Doing repairs, performing maintenance, searching for the best tenants, dealing with bad tenants, fixing major damages, etc. is more than most people are willing to tackle. So, yeah, lack of desire to go through all this is what must have prevented you from becoming a successful real estate investor by now.
Well, you’ve made a major mistake by assuming that buying a rental property is the only way to invest in real estate. Actually there are many other options to become a real estate investor without ever buying a rental property. Let’s look at the most popular and promising real estate investment strategies excluding the process of buying a rental property:
1. Real Estate Wholesaling
One of the first strategies for investing in real estate without buying a rental property which comes to one’s mind is real estate wholesaling. As a real estate investment strategy, real estate wholesaling is very similar to fix-and-flip in the sense that the entire process is completed over a very short timeframe. However, in a fix-and-flip situation, you actually buy a real estate property, do necessary fixes, and sell it for a profit. In real estate wholesaling you skip the whole thing of buying a rental property. Instead, you contract with a property seller, market the real estate property for sale, find a property buyer, and assign the contract to the buyer. The money you make is the difference between the sale price and the purchase price.
Be careful though. No matter how it sounds, real estate wholesaling is a tiresome process which requires a lot of action on behalf of the real estate investor within a very limited time period (the duration of the contract with the seller). But you are looking for options to enter the world of real estate investing without buying a rental property, that might be the right strategy for you.
2. Investing in REITs
If you’ve ever thought about real estate investing, you must have heard of Real Estate Investment Trusts (REITs), right? So, a REIT is a trust, corporation, or association which invests in real estate through the purchase of real estate properties (apartment buildings, condos, or commercial real estate) or mortgages (residential or commercial). Thus, REITs can be equity, mortgage, or hybrid (a combination of the former two types). And how do you invest in REITs? You buy shares, so in this sense you it is very much like investing in stocks. While you are doing real estate investments, you are not buying a rental property or managing it in any way. That’s why the convenience. How do you make profit from investing in REITs? In two ways: receiving a share of the income generated by real estate properties and receiving a share of the real estate appreciation which properties experience over the course of the years.
3. Investing in Real Estate Mutual Funds
Another real estate investment strategy for those willing to skip the process of buying a rental property is investing in real estate mutual funds. What are those now? Real estate mutual funds invest in REITs, real estate related stocks, or a combination of the two. Real estate investors then purchase and redeem mutual fund shares based on the fund’s current net asset value (NAV). The NAV is calculated once a day according to the closing prices of the securities in the fund’s portfolio. Again, that’s a nearly effortless way to become a real estate investor without the need to be the owner of an income property and to act as a property manager and landlord.
4. Buying Land
Last but not least, if you want to invest in real estate but are not willing to go through buying a rental property, you can buy land instead. Buying land is much easier as you don’t have to worry about investment property analysis as there is no investment property built on it. You don’t have to think about rental income, cash flow, tenants, and vacancy rates either because you don’t usually rent out land. But how will you make money? From selling the piece of land once it has appreciated in value.
Now that we have covered the major ways of becoming a real estate investor without buying a rental property, let’s see whether that’s actually a good idea. What are the pros and cons of real estate investing with no income property?
The Pros of Investing in Real Estate Without Buying a Rental Property
- Affordability: You can start real estate wholesaling or investing in REITS and real estate mutual funds with as little money as you have right now. There is no need to save up for a down payment and to worry about covering the monthly mortgage payments.
- Speediness: Because you don’t need a down payment and because you are not going to perform real estate market analysis and investment property analysis or look for investment properties, you can start right now.
- No hassles: You won’t need to maintain and fix a real estate property or deal with tenants. That will save you lots of time and energy to focus on other things.
- Professional management: In the case of investing in REITs and real estate mutual funds, your investment will be managed in a professional, highly qualified manner. Your money will be in safe hands (as safe as any investment can be).
- Opportunity for serious gains: In any of the 4 real estate investment strategies above, you can make some serious profit it you choose your investment smart and if you are lucky – all that without the need of buying a rental property and dealing with it.
- Chance to grow your portfolio: Because investing in REITs and real estate mutual funds requires limited financial resources, you can actually grow your real estate investment portfolio fast and to degrees unavailable in traditional real estate investing.
The Cons of Investing in Real Estate Without Buying a Rental Property
- No control: The most serious drawback of investing in real estate without buying a rental property is the fact that you have no control over your assets. Whether you will make money or not (or even lose money) from investing in a REIT or a real estate mutual fund is all in the hands of some professional investor.
- No excitement: While it is true that we all like making money, buying and managing income properties brings additional benefits including the excitement of dealing with real, tangible assets and looking for the best ways to make them profitable.
- No rental income: All real estate investment strategies described above aim to eventually make money for you. However, they will not provide you with a monthly rental income as an investment property.
All in all, both buying a rental property and other forms of real estate investments have advantages and disadvantages. However, if you really don’t want to be an income property owner and a landlord, you can choose any of the 4 real estate investment strategies listed above to become a real estate investor. For more advice on real estate investing, check out Mashvisor every day.