Ways to Invest in Real Estate and Create Multiple Streams of Income
When most investors think of diversifying into real estate, they jump straight to real estate investing trusts (REITs) — and for good reason.
You can buy REITs easily through your regular brokerage account, IRA, 401(k), or other retirement account. Because they’re publicly traded, they’re regulated by the SEC and required to provide a wealth of information to help you make informed investing decisions. They offer high liquidity, allowing you to buy and sell instantly. And they make diversification easy, as you can spread your investments among hundreds or even thousands of properties and real estate projects across the world.
Real estate investing trusts typically come in two varieties: equity REITs and mortgage REITs (mREITs). Equity REITs invest directly in properties, while mREITs lend money secured by real estate.
Real Estate Crowdfunding
A more recent entry into the world of real estate investments, crowdfunding offers another way to indirectly invest in real estate.
While many crowdfunding websites still only accept money from accredited investors, these services have increasingly opened their doors to middle-class investors. That means investors can get started with less than $1,000 and invest like their wealthier counterparts.
Owning rental properties directly comes with its own unique advantages and disadvantages.
When you buy a rental property, you can predict the cash flow, or ROI, with great accuracy. You know the price you’re paying, you know the market rent, and you can forecast the long-term average of your expenses, such as annual repair costs, vacancy rates, property taxes, property management fees, and insurance.
No one says you can’t live in your own rental property.
The idea behind house hacking is simple: You bring in other people to pay your mortgage for you. In the classic model, you buy a multifamily property, move into one unit, and rent out the neighboring unit or units. You neighbor-tenants pay your mortgage for you, and you live there for free.
While you can use a rental property as either a long-term rental or a short-term vacation rental through Airbnb, the business model for each varies significantly.
Short-term rental properties require much more work, from cleaning units between guests to marketing to coordinating entry and ongoing communication with guests. In essence, you’re running a hospitality business.
Syndications and Silent Partnerships
In real estate syndications and silent partnerships, you put up money but don’t actually do any of the work of finding deals or managing properties. Instead, the principal partner or “sponsor” does the work and gets an extra cut of the profits for their trouble.
Syndications typically involve large commercial properties. The sponsor finds a good deal, then raises money from investors to fund it. As part of the deal, the investors surrender all decision-making power and oversight to the sponsor.