Real estate has been a source of passive income for many generations of investors. The housing market is constantly developing due to ongoing global population growth and modernization. In just the third quarter of 2018, house prices in Europe rose by 4.3% according to Eurostat1. But many people still face difficulties investing in real estate because it is an expensive and time-consuming process. Luckily, the modern real estate landscape offers a range of ways to participate in the housing market without maintaining the property, saving up money for years or constantly looking for tenants.
REITs (Real Estate Investment Trusts)
This investment allows people to purchase shares in commercial real estate portfolios. The income comes from a variety of properties. These may be offices, hotels, infrastructure or private buildings - the scope is wide. The income is distributed among shareholders. REITs offer transparency and liquidity because investors can buy and sell shares like stock. Investment trusts are regulated by the SEC (securities and exchange commission). But REITs depend on equity market valuations and usually have low growth and high rates of tax2.
REIT ETFs (Exchange-traded funds)
A REIT ETF invests in REIT indexes. It is usually used for long-term investment, as the returns appear after some time and depend on the equity market. This type of investment is considered less risky than investing in a REIT directly because the participants do not buy shares themselves. But there is an even lower return and no protection from market changes, as well as in other options. Also, investors do not directly control the REIT shares and need to depend on the management of the fund3.
Wholesaling Properties
Wholesaling properties has a lot in common with flipping them. But with wholesaling, you don't actually purchase and own the home. You sign a contract with a person who wants to sell the property, and then you take the contract and present it to a prospective buyer. If you sell the property, you make a profit from the difference between the contract price with the seller and the price you sold the house to the new owner. The downside of this investment is that it can take a lot of time to find a house below market price, find a buyer and then sell it quickly. A wholesaler also needs to know the market well4.
Real estate mutual funds
Here investors’ money is pooled and invested in either stocks or bonds. The investor is essentially buying mutual fund shares. The net value of these shares, or their worth, is recalculated every day. This type of investment is relatively low risk and offers a potential for capital return in the long-term, but the returns are not guaranteed. These funds can also be affected by interest rates5.
Property crowdfunding
Property crowdfunding pools together several investors on an online platform to buy a property, or in some cases groups of properties for greater diversification. It gives investors easier access to real estate6. Property crowdfunding usually provides investors with an opportunity to control and manage their investments. It also takes less time than wholesaling because the process of finding the deal and flipping the house is handled by a third party. Property crowdfunding is usually cheaper and less time-consuming than other real estate investing approaches, but it still holds the risks that any investment does.
It is possible to invest in real estate without buying it at great cost. As the market grows, the number of options to invest with less money and time outlay increase as well, and it is just up to you to choose the type of investment that appeals to you the most.
Sources
- https://ec.europa.eu/eurostat/documents/2995521/9277383/2-05102018-AP-EN.pdf/50aaf5d0-8cfc-4d96-a48b-149b9933709e
- https://www.investopedia.com/terms/r/reit.asp
- https://www.investopedia.com/terms/r/reit_etf.asp
- https://www.investopedia.com/ask/answers/100214/what-goal-real-estate-wholesaling.asp
- https://www.investopedia.com/articles/investing/040315/reits-versus-real-estate-mutual-funds.asp
- https://www.investopedia.com/ask/answers/100214/what-real-estate-crowdfunding.asp
