Top 5 ways to invest in real estate without buying a property.

Real estate investment is generally associated with hefty capital investment. However, the lack of such an amount may not necessarily mean that one cannot invest in the sector. With new trends making headways into the industry, there are now various ways to invest in real estate apart from buying a physical, immovable property.

Real estate investments do not necessarily involve property ownership. There are plenty of other opportunities that allow investors to reap the benefits of real estate appreciation, without the need to shoulder the continuous responsibilities of building maintenance. Investors who choose to invest in real estate beyond the traditional sense of buying property, have the option to invest across multiple locations and property sizes along with different classes of real estate. While these steps may serve as predecessors to potential property-owning in the future, you may also find the returns from these realty investments compelling enough to avoid buying a property altogether.

Real Estate Investment Trusts (REITs)

Real Estate Investment Trusts (REITs) is a specialised company which makes debt and equity investments in commercial real estate. Introduced in the year 1960 for the purpose of allowing investors an opportunity to invest in real estate as an asset class, REITs is known to offer a minimum of 7-8 percent annual return to small and mid-level investors. Similar to a mutual fund, REITs investors hold shares of REITs and earn returns in the form of dividends, depending on the performance of the REITs investments.

According to Parth Mehta, Managing Director, Paradigm Realty, “REITs are likely to be a game-changer for the Indian real estate industry. They help sponsor assets through trusts and let investors become the owners of varied properties, even though they may not be able to buy the asset solely. As per REITs guidelines, at least 80 percent of the value must be invested in revenue-generating assets, whereas, the remaining can be invested in under-construction projects. REITs are primarily preferred by those looking for higher income and long-term growth.”

Real estate wholesaling

Real estate wholesaling is a good way for individuals to break into the real estate industry, without investing a massive amount. It is a form of property flipping where the investor, also known as the wholesaler, enters into an agreement to buy a property that they believe is underpriced. The property is then sold to the end user at a profit. The process helps a beginner to gain insight into the real estate market and inculcate negotiation skills. The wholesaler earns revenue in the form of a fee that is attached to the transaction, usually a certain percentage of the overall property cost.

Real estate mutual funds

Investing in real estate mutual funds is beneficial to diversify your investment portfolio. The concept is similar to a mutual fund where the investor owns a portion of the mutual fund while the company itself owns the investment that it makes. The earnings are in the form of a dividend or a certain amount of share appreciation. Real estate mutual funds primarily invest in REITs, real estate stocks, and direct purchases of residential, commercial, and industrial units. The option is considered favourable for small investors who shy away from dealing in real estate directly. An important point to consider here is that the earnings from real estate mutual funds depend on several factors, including demand and supply demographics, market conditions, and interest rates.

“Real estate mutual funds are a decent investment option for potential investors who wish to take advantage of the appreciation in the real estate market but do not have sufficient amount to purchase a property, especially in cities, such as Mumbai and Delhi where property prices are extremely high,” avers Amit Desai, Owner, Propinvest Realty.

Online investment platforms

Online real estate investment platforms pool funds from several investors and invest on their behalf in opportunities which otherwise would be expensive to explore. These range widely in terms of investment offerings, property types, and the minimum investment amount. With a focus on both residential and commercial real estate, the online platforms provide investors access to invest in a single property or an assortment of diversified real estate options. However, the medium is best suited for those who can afford to continue with their investments uninterrupted for an extended period of time.

Hard money loans

Hard money loan is basically a loan extended by an individual to a real estate investor. Also referred to as bridge loans, hard money loans refer to short-term lending to finance an investment project. The loan is provided on the basis of the value of the property secured. Usually, the lender provides credit up to 65-75 percent of the property value and earns by way of interest, which is mostly higher in comparison to conventional property loans.

Apart from the above options, investors can also consider utilising their secondary property for rental income. However, for a complete amateur, it is always advisable to consult realty and seasoned legal experts before taking the plunge.

Frequently Asked Questions

Is it safe to invest in real estate without property ownership?

As is the case with all investment options, there can be potential risks involved in real estate investments also. However, it is recommended to seek professional assistance before beginning any investment.

How can beginners invest in real estate?

Beginners can invest in rental properties, small plots and flipping houses.

Is real estate a liquid investment?

No, real estate is considered a non-liquid asset because it takes longer to receive cash against its sale.