While owning rentals is perhaps the best passive source of cash flow, it comes with its own set of headaches. What other options are there?
There are a lot of different ways to invest in real estate. One of the most common is becoming a landlord and using that steady monthly income to invest in more properties. But being a landlord is a tough job that doesn’t suit everyone, especially those who want to be more passive with their income streams. What if you don’t want to deal with the hassle of tenants or don’t have the money to buy a property outright? Can you still invest in real estate without being a landlord?
Yes, you can! You can invest in real estate through a number of different methods, such as buying a property outright as a fix & flip, investing in REITs, or wholesaling real estate contracts.
So let’s get into these methods and talk about the pros and cons of each. Plus, I’ll give you a few tips for how each technique can succeed without investing too much time or energy.
The Pros and Cons of Being a Landlord Real Estate Investor
Can I invest in real estate without being a landlord? It depends on your definition of “invest.” If you’re looking to make a quick buck, then you might be able to get involved in the real estate market without having to become a landlord. However, if you’re looking to invest in a long-term project, becoming a landlord is a better option. There are many benefits to owning and operating your own rental property, such as increased income, reduced overhead costs, and the ability to control your destiny.
However, being a landlord can also be risky. If you don’t have the skills or experience necessary to run a property, you could lose a lot of money. Additionally, being a landlord can be time-consuming. You need to be able to manage a property well and keep it in good condition. If you’re not up for the challenge, you might not make enough money to justify the effort.
Other Ways to Invest in Real Estate Besides Rental Properties
Luckily for us, rental properties aren’t the only method of real estate investing. A few alternatives include:
Fix & Flips
Fix & flips are the staples of the real estate investment industry. With a bit of preparation and luck, you can make some money and learn some valuable skills. To run a successful house flipping business, you’ll need to have a good understanding of market valuations, a dedicated network of service professionals, and a hot market that gets your properties sold quickly. If you’re looking to get involved in the real estate market without becoming a landlord, fix & flips might be a good option for you.
Buy & Hold
Another popular real estate investment strategy is to buy & hold. This involves purchasing properties and holding them for an extended period of time, typically years. The benefits of buy & hold are that you don’t need to worry about the market – the properties will appreciate in value over time regardless of the current market conditions.
However, there are a few risks associated with buy & hold. If the market crashes, your investment could lose a lot of money. Additionally, if you don’t have much money liquid and need cash in a hurry, it’ll be difficult to get your properties sold quickly.
Bring on a Business Partner
Some investors will bring on a business partner to help lower the business’s burden alone. Partners can be long-term or for one property only, but you must be clear about the terms of your relationship before bringing them onboard.
Utilize a Property Manager
Many people want to invest in real estate but don’t want the hassle and responsibility of being a landlord. A property manager can take on some of this responsibility for you. They will handle the property’s day-to-day operations, including collecting rent, making repairs, and keeping an eye on the property’s condition.
However, a property manager isn’t a substitute for having your own real estate knowledge and experience. Also, their fees can be expensive, especially if you’re handing off the majority of control over to them. Check out this guide first before bringing on a property manager, so you understand the whole picture of what you’re getting into.
Investing in Real Estate Without Owning Property
If none of those appeals to you, there are a few ways to invest in real estate without actually owning property.
One way is to invest in real estate investment trusts (REITs). These companies own and manage properties, and you can usually invest in them through a mutual fund or exchange-traded fund.
Pros of investing in REITs:
- Many REITs offer stable, predictable returns.
- REITs are often considered a safe investment since their stocks are not as volatile as those of other types of companies.
- You don’t have to worry about maintenance or repairs since the company will care for them.
- REITs can be an excellent way to diversify your portfolio.
Cons of investing in REITs:
- REITs are not as liquid as other types of investments, making them difficult to sell if you need to.
- Some people find REITs complex and difficult to understand.
Wholesaling Real Estate Contracts
Wholesaling real estate contracts can be a great way to make money. To become a wholesaler, you simply get a property under contract and then sell that contract to another investor or buyer for a profit. You would not need to be a landlord to do this, but you will need to know about the real estate market since you’ll be dealing with properties that are currently for sale.
Pros of wholesaling:
- You can make a great deal of money if you can identify a property in high demand and has a low supply.
- Wholesaling can be a great way to get your feet wet in the real estate market and learn more about it.
- You don’t need to have a lot of money saved to get started. Your costs are typically just earnest money and some contingency fees if you need a contract extension.
Cons of wholesaling:
- It can be difficult to find properties that are in high demand and have low supplies.
- If the market crashes, you could get caught with a contract and no interested buyer.
Real Estate Crowdfunding
Crowdfunding is a way for individuals and businesses to raise money by offering ownership shares in a project or enterprise to a broader audience. Real estate crowdfunding is a recent development in the real estate industry that allows investors to purchase shares in residential and commercial real estate projects. Investors can buy shares in a project before it’s completed, during the construction phase, or after it’s completed. It’s like bringing on partners but from a much wider pool than your in-person network.
Pros of real estate crowdfunding:
- Investors can get involved in real estate projects that they wouldn’t be able to invest in otherwise.
- It can be a way to get your feet wet in the real estate market and see if you have the stomach for it.
- Real estate crowdfunding is relatively new, so there are still plenty of opportunities to find good deals.
Cons of real estate crowdfunding:
- There’s a risk that the project won’t be completed as planned.
- Investors may not get their full investment back.
- Unfortunately, since this is all new territory, there isn’t much in the way of regulation, so some projects may be fraudulent.
Become a Hard Money Lender
If you’re looking to invest in real estate without becoming a landlord, you may want to consider becoming a hard money lender. Hard money lenders are typically individuals or companies that offer high-interest loans to property investors to help them purchase properties.
Because hard money lenders are typically more interested in making a quick profit than in long-term investments, they are not always the best choice for those looking to invest in real estate long-term. However, if you’re looking for a quick and easy way to get into the real estate market, a hard money loan may be the right option for you.
Pros of becoming a hard money lender:
- Having the ability to provide liquidity and capital to borrowers in a difficult market
- The potential for high returns
- The ability to work with a wide variety of borrowers in a well-defined niche.
- Hard money lenders are also not subject to the same regulations as traditional lenders, leading to faster and more favorable lending decisions for your clients.
Cons of becoming a hard money lender:
- You’ll need to be able to stomach high-interest rates, which could mean higher monthly payments for borrowers.
- You’ll need to be able to stay on top of the ever-changing real estate market.
- Hard money lending is notoriously risky, so you could lose a lot if the market crashes.
- If your client defaults and you take over ownership of the property, you’ve still got to find something to do with the house and may need to invest more money to get it in salable condition.
Tips for Investing in Real Estate
There are a few things to keep in mind when investing in real estate:
- Understand the market. This means learning about the trends in your area, what kinds of homes are selling, and what prices are being offered.
- Make sure you’re getting the best deal for your money. Don’t overpay for a property just because it’s in your budget. Compare similar properties to get an idea of what the market is really offering.
- Think long-term. Don’t get caught up in the rush of the short-term market. Stay patient and let the market work its magic.
- Find a reputable real estate agent. Ensure they have experience in your area, know the market, and have a good reputation.
- Do your research. Before making any decisions, read up on the different types of real estate, the different types of contracts, and the different types of properties.
There are a lot of different ways to invest in real estate. If you don’t want to become a landlord, there are plenty of other options available to you. When you’re looking to buy a property, make sure to research the different options and find the best one for you. Remember, it’s essential to do your own research and not just take someone else’s word for it.