Real estate investing has always been associated with traditional “offline” strategies. But now that we live in the age of technology, we are seeing more and more people who are turning to virtual, “online” means to invest in real estate, for many different reasons. Investing in real estate online seems to make more sense than ever today especially with the outbreak of the novel coronavirus. In fact, investors are wondering how to make money online in real estate and are looking for new and alternative ways to make investments without having to leave their homes. Fortunately, there are many convenient and affordable opportunities for investing in real estate on the internet and they are suitable for both beginner and experienced investors alike. In this article, we will show you seven different ways you can go about making online real estate investments, all from the comfort of your computer or smartphone.
Best Online Real Estate Investments for 2020
1. Real Estate Investment Trusts
The first way you can make online real estate investments is through real estate investment trusts or REITs. REITs are companies that own, develop, and operate income-producing real estate. They mostly focus on commercial real estate such as office buildings, shopping centers, hotels, and retail spaces. But, they can also invest in residential real estate such as multi family homes. Real estate investors who buy into a REIT own a share of the REIT, while the REIT itself owns the investments that it makes. As a result, each investor earns a share of the total income produced. REITs are typically required to distribute no less than 90% of the taxable income to its shareholders via dividends, which makes them a profitable real estate investment.
REITs are a favorable option for those looking for a consistent and passive income stream from a reliable source. If you are a beginner investor considering investing in REITs, make sure to invest in publicly-traded REITs such as Investors Real Estate Trust (IRET). These can be purchased from an online broker.
2. Real Estate Mutual Funds
Another way you can make online real estate investments is through real estate mutual funds or REMFs. REMFs are mutual funds that invest in securities (such as stocks and bonds) of real estate companies. They pool money from a number of investors and make investments on their behalf. The investments are managed by a fund manager, who oversees the daily operation of the fund. The investors each own a share of the REMF. They can buy or redeem their shares at the REMF’s current net asset value (NAV), which is the value of all of the fund’s securities divided by the total number of shares. REMF investors mainly make money through share appreciation, meaning they can potentially see high returns in the long term once they sell their share.
By investing in REMFs, you will not only benefit from professional investment management, but you will also get a chance to diversify your investments at a relatively low cost. Some of the best REMFs to invest in 2020 include Cohen & Steers Instl Realty Shares and DFA Real Estate Securities Portfolio.
3. Real Estate Exchange-Traded Funds
The third way you can go about making online real estate investments is via exchange-traded funds or ETFs. Similar to real estate mutual funds, ETFs are professionally managed pooled investments that invest in the securities of real estate companies. The main difference between the two is that ETFs can be actively traded throughout the day, as opposed to REMFs which can be bought or sold only at the end of each day, based on the NAV price. Moreover, ETFs tend to have lower expense ratios, which can result in a higher overall return on investment. While this can be seen as an advantage, ETFs can also be associated with higher trading costs.
The top ETFs to buy in 2020 include Vanguard Real Estate ETF (VNQ), iShares Core U.S. REIT ETF (USRT), and iShares Global REIT ETF (REET).
4. Real Estate Crowdfunding
Real estate crowdfunding is another good way to make online real estate investments. Real estate crowdfunding is when several real estate investors get together via a website and pool their money to raise funds for real estate projects. Each investor contributes as much money as he/she wants (usually a minimum is set), and in the end, everyone earns a percentage of the profits made. Like REITs, mutual funds, and ETFs, real estate crowdfunding is a passive, hands-off real estate investment strategy. The project developer or ‘sponsor’ is the one who is in charge of all the management work. The investors only have to provide the capital for the projects.
This investment strategy is especially favored among those getting started in real estate with a limited budget as it allows them to invest in real estate online with as little as $500. The most popular real estate crowdfunding websites in 2020 include Fundrise, Crowdstreet, and Peerstreet.
5. Real Estate Notes
Next on our list of the best online real estate investments for 2020 is an investment in real estate notes. A real estate note is a promissory note for mortgage loan payments. A promissory note is basically a document containing a written promise by one party to pay another party a certain amount of money in a certain amount of time. Real estate notes can be bought, sold, and traded just like any other assets which guarantee payments. By investing in a real estate note, an individual takes on the role of a lender who holds the loan, and as a result, he/she is entitled to receive payments from the borrower. The borrower will have to pay the lender back within the defined timeframe with interest.
Investing in real estate notes is another good way to secure a steady and passive income as you will be getting monthly payments from the borrower. You can buy real estate notes on online marketplaces such as Notes Direct and Paperstac.
6. Hard Money Loans
If you don’t like any of the online real estate investments listed above but have some cash to lend, you can consider giving hard money loans. A hard money loan is essentially a loan extended by an individual to a real estate investor in order to finance an investment property. The terms of the loan are normally around 12 months but can be extended to longer terms of two to five years. The amount that the hard money lender lends to the investor is based on the value of the investment property in question. In most cases, the lender provides credit up to 65% to 75% of the property’s value and earns returns by way of interest, which can be up to 10% higher than conventional property loans.
Giving hard money loans is another good strategy for those looking to invest in real estate without having to deal with a property and the headaches that are associated with it. To become a hard money lender, you can join a peer to peer lending website like Lending Home or Lending Club where you can find borrowers and make online real estate investments.
7. Real Estate Investment Software
If you are looking to invest in real estate online by buying actual property, you might want to consider our final strategy, that is: making online real estate investments through real estate investment software like Mashvisor. Mashvisor is an online platform that helps investors find properties that are a good investment, either as traditional or Airbnb rental properties. It provides them with predictive analytics, property data, and a number of real estate investment tools that they can use to locate the most profitable investment properties.
For example, investors can research different housing markets in the US using city-level real estate data which can be found on Mashvisor’s blogs. Then, once they’ve found a good market, they can carry out a neighborhood analysis using the Heatmap Analysis tool. They can then use the Property Finder tool to find investment properties for sale with a high return on investment in their neighborhood of choice. And finally, using the Investment Property Calculator, they can perform an investment property analysis to analyze the different investment properties for sale and find the most lucrative ones.