How to Invest without Buying Property

By Rebekah Green on 12/25/2024.

Investing in real estate has long been recognized as a lucrative wealth-building strategy. However, breaking into the property market can be challenging. Fortunately, innovative investment methods now allow investors to participate in real estate without purchasing property directly. This approach offers several advantages, including access to potentially high-reward opportunities with lower entry costs and minimal management responsibilities.

In this article, we'll explore various ways to invest in real estate without buying property, with a focus on investment opportunities offered by Hezekiah. We'll also discuss alternative options, ranging from online real estate programs to more traditional in-person approaches. Each option comes with its own set of advantages and disadvantages, which we'll delve into to help you make informed investment decisions.

Whether you're interested in online platforms or prefer a hands-on approach, there's a real estate investment solution suited to your preferences and financial goals. Join us as we guide you through the diverse investment landscape and set you on the path to real estate investment success.

Ways to Invest Real Estate in without Buying Property

Over the past two decades, numerous investment opportunities have transitioned to online platforms. However, several traditional methods remain predominantly offline, relying on personal connections and relationships. Let's begin by examining these three traditional approaches.

Wholesaling

Wholesaling involves an investor proposing to purchase a property, securing acceptance of the offer from the seller, and then transferring that purchase contract to a new buyer. It's akin to flipping homes but revolves around flipping purchase contracts instead.

In a hot market where property values are appreciating rapidly, wholesaling can yield substantial profits. Investors with strong industry connections often excel in wholesaling, as they typically have established relationships with both sellers and potential buyers. The allure of wholesaling lies in its ability to facilitate quick transactions, allowing investors to swiftly enter and exit deals.

However, wholesaling carries inherent risks. Failure to secure a buyer leaves the investor accountable for the purchase contract. This may result in penalties for backing out of the deal or obligates the investor to proceed with the purchase, contradicting the original intent of real estate investment without property acquisition. Additionally, profit margins in wholesaling tend to be narrow due to the rapid turnover of deals. Despite the potential for quick transactions, investors may find themselves dedicating significant time to scouting properties and arranging buyer agreements.

Real Estate Private Equity Funding

A real estate private equity fund manager aggregates investment funds from a group of individual investors and selects a project for capital deployment on behalf of the entire group.

Investing in private equity funding necessitates unwavering confidence in the fund manager. Investors must trust the manager's ability to identify suitable projects, negotiate advantageous terms, and effectively and ethically manage the property.

Private equity funding opportunities are often elusive. As the term "private" suggests, these funds are not publicly available, and deals are frequently facilitated among investors within the same social circles.

Without established connections or confidence in the fund manager's capabilities, private equity funding may not align with your investment objectives.

Real Estate Notes

This investment option is commonly referred to as carrying the mortgage note for a property owner. An example of this is seller carry-back financing, where a seller provides financing for a buyer who is struggling to qualify for a traditional home loan, effectively acting as the lender.

Seller carry-backs represent one avenue for investing in real estate notes, but they're not the sole option. Notes can also be purchased and sold online, although buyers may encounter retail prices in the open market. Engaging directly with lenders and banks offline often presents better investment opportunities.

Note investing has historically been considered a "safe" investment, with the exception of the housing market collapse in 2008. Borrowers typically prioritize mortgage payments, minimizing default risks. In the rare event of default, investors retain the option to foreclose on the property, potentially gaining possession. However, this outcome contradicts the objective of investing without actual property ownership.

Real Estate Hard Money Loans

Hard money loans function similarly to real estate notes, as investors act as lenders for someone else's property purchase, with the loan secured by the subject property. However, hard money loans differ in that they are typically short-term and primarily based on the value of the collateral property rather than the creditworthiness of the borrower.

In practice, hard money loans are commonly used to finance fix-and-flip projects. Investors provide significant funds to flippers, anticipating repayment of the investment plus interest within six months to two years.

The primary advantage of hard money loans lies in the ability to charge comparatively high interest rates. However, they also entail downside risks. It's advisable to issue hard money loans to experienced and financially responsible property owners to mitigate risks. When vetting borrowers for hard money loans, leveraging personal networks for deals is preferable to engaging with unfamiliar parties online.

Tax Liens

Tax liens offer investors the opportunity to invest in the lien against a property rather than the property itself. In cases where property owners fail to pay taxes, many states conduct tax lien auctions. Unlike traditional auctions where bids increase the purchase price, in tax lien auctions, investors bid down the interest rate they are willing to accept for the lien. The investor offering the lowest interest rate pays the delinquent taxes and acquires the lien against the property. Subsequently, the property owner must repay the investor the lien amount plus accrued interest.

Investing in tax liens often involves a "courthouse steps" auction process in many counties. This requires investors to attend the auction in person and compete against other investors through bidding.

How to Invest in Online Real Estate without Buying Property

The landscape of non-traditional property investment has expanded significantly in recent decades, largely due to the advent of the Internet. What were once exclusive opportunities limited to a privileged few are now within reach for everyday investors.

Here are five avenues through which you can invest in online real estate without directly purchasing property:

1. REITs (Real Estate Investment Trusts)

REITs, or Real Estate Investment Trusts, are companies that invest in income-generating properties and distribute profits to shareholders through dividends.

The Securities Exchange Commission (SEC) imposes stringent regulations on REITs, defining specific criteria they must meet. These criteria include:

Investing at least 75% of total assets in property, cash, or U.S. Treasuries.
Generating at least 75% of gross income from rents, interest on mortgages financing real property, or sales.
Distributing a minimum of 90% of taxable income to shareholders as dividends annually.

One of the primary advantages of investing in REITs, apart from their accessibility through online platforms, is the consistent dividend payouts. Additionally, investing in a REIT offers automatic diversification as they typically hold diverse portfolios of properties. However, investors have no control over the specific properties held by the REIT.

2. Real Estate Mutual Funds

Real estate mutual funds share similarities with REITs as they are both available for trading on the stock exchange, focus on real estate, and encompass portfolios of properties rather than individual projects.

However, mutual funds offer a bit more flexibility compared to the structured nature of REITs. Unlike REITs, mutual funds are not companies but rather investment packages actively managed by a fund manager. Mutual funds have the liberty to invest in any stock within the real estate sector, including real estate companies such as eXp and CBRE, or even REITs. Furthermore, mutual funds are not obligated to pay out dividends.

While not as flashy as other investment options, mutual funds provide a stable avenue for passive, long-term investments in a diversified portfolio of real estate-based assets.

3. Real Estate EFTs

ETFs, or Exchange-Traded Funds, share similarities with mutual funds as they are both traded on the stock exchange and consist of diversified portfolios of stocks in real estate companies, REITs, and home building companies.

However, there are several key distinctions:

ETFs trade throughout the trading day, unlike mutual funds which are traded only at the end of the day.
While mutual funds are actively managed by a fund manager, ETFs typically track an index, resulting in lower expenses compared to actively managed mutual funds.
Mutual funds often have investment minimums due to their active management, whereas ETFs generally do not impose such minimums.

ETFs present an attractive option for investors seeking low-cost and relatively liquid real estate investments.

4. Real Estate Crowdfunding

The JOBS Act of 2012 revolutionized real estate crowdfunding by permitting private companies to solicit funds from the public. Crowdfunding broadly refers to any initiative to raise capital from investors for a project. However, the term is commonly associated with online platforms that enable investors of all levels to participate in specific projects alongside a group of other investors.

What makes crowdfunding appealing is the ability to select individual properties for investment with low minimum investment requirements. Additionally, investors benefit from expert management of projects conducted on behalf of the fund.

While some crowdfunding ventures utilize equity funding, granting investors ownership stakes in the underlying property, many opt for debt funding. In this scenario, investors assume a lender role rather than an ownership role.

Crowdfunding presents a versatile approach to investing in real estate online without the need to directly purchase property.

5. Real Estate Syndication

Real estate syndication takes crowdfunding to the next level. Similar to general crowdfunding, syndication pools funds from multiple investors, granting access to projects that would typically be out of reach for individual investors. However, unlike most crowdfunding platforms, syndication provides investors with ownership stakes in the project through a legal partnership established between the project's sponsor and the investors. Investors become shareholders in the legal entity that owns the property.

Syndication offers numerous benefits:

Flexibility: Investors can choose from a variety of projects ranging from short-term flips to long-term developments, including single-family house flips, multi-family developments, rental properties, and luxury real estate.
Control: Investors have the exciting opportunity to select specific projects to invest in, allowing them to witness the progress of tangible assets.
Low Minimum Investments: With Hezekiah, investors can participate in multimillion-dollar properties for as little as $25,000.
Diversification: Investors can spread their investment across multiple projects, reducing risk and increasing potential returns.
Ownership Interest: Investors acquire ownership stakes in the projects they invest in.
Expert Management: Experienced sponsors handle location scouting, project supervision, and fund management.
Competitive Returns: By leveraging the resources of other investors, syndication offers access to larger projects with potentially higher returns.

The main drawback of syndication is that it's restricted to accredited investors. However, Hezekiah has adopted this investment model to offer a blend of the best features from various investment options.

Sign up with Hezekiah today to start investing in real estate. Once your accredited investor status is confirmed, you can choose your preferred projects and begin investing.

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