Hey you, my awesome blog readers! 🙂 Today I want to talk about a topic that I believe many of you guys are interested in – based on the stats of my blog, which is real estate investment! But, this post will have a little twist, mainly on how to invest in real estate without buying a house.
Yes, you can still invest in a property without buying a house OR with very little money. And I’m going to show how.
I wanted to share this with you guys because the post where I shared my journey of buying a house and putting up for rent has been the most famous post on this blog of mine.
And a lot of my friends had been asking me on how can they do the same too.
To be real honest with you, if I’d known these different ways to invest in real estate and scaling it bigger with the same amount of money I’ve invested in my house, I’d probably go with some of the below options.
Simply because it takes away the whole maintenance fees and management processes.
I just knew what a hassle it was after getting my own house.
Related post: How To Buy A House In Your 20s
But anyway, without further ado, if you want to learn how to invest in real estate with little money and without buying a house, let’s get on right with the topic!
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Investing in REIT
3 years ago, I had no clue what REIT was. All I knew was that it’s some type of an investment that my sister had been asking me to look into since it was a pretty hot topic at that time.
Well, I wish I’d listened to my sister. But I didn’t now, did I.
What is REIT and How Does It Work?
REIT stands for Real Estate Investment Trust.
Investing in REIT, in my basic explanation to people would be a simple way for you to buy a fraction of a house or a property and get rent or capital gain back from the “fraction” that you’ve bought.
This means that you don’t need to fork out a lot of your money to own a property and go through all the hassle of signing a contract, working with an agent and so on. It’s as simple as buying a stock or an ETF online.
If you’re a bit lost on all these investment terms, check out my Ultimate Personal Finance Guide post here.
You’re basically investing in a company that invests, owns or manages real estates that are income-producing. They might be a company of hoteliers or perhaps a company that builds and rents out commercial space all over the country.
There are specific guidelines on how a company can be listed as a REIT. One of them is that they will need to give out 90% of their taxable income to their investors or many property owners (which is you).
Now, you might be thinking – why do you need to invest in REIT if you can invest in ETFs or unit trusts of real estate companies?
Why Invest In REIT?
Well, REIT tends to have a high dividend yield roughly around 10% on average. So it’s a good way for you to invest and get passive income right away. In contrast with ETFs and unit trust, they tend to have a longer time horizon and won’t be the best way to get passive income.
Unless your strategy is to trade with ETF.
REIT will look good right at this moment, but I’m afraid I have to burst the bubble. REIT is taxed higher as your ordinary income source to be compared with the gains you receive from other ordinary shares, which are taxed at a lower scale.
What you can do though is invest in REIT in your IRA account where it won’t be taxed at the same level as your ordinary income source. BUT this also means that this investment will be allocated for your retirement planning and not for passive income generation.
If you’d like to get started, I recommend creating an account with WeBull. They take 0 commissions and there’s no minimum deposit! Plus for REIT, they have a lot of info on how you can get started! 😊
Investing in Real Estate Unit Trust & Real Estate ETF
The main difference in investing in REIT as opposed to real estate unit trust is that real estate unit trust won’t give out the same amount dividend and they are usually for a longer time horizon type of investment.
You are still investing in a “bunch” of different real estate companies however the payout of the investment will still be different.
If you want to invest for your retirement, you can opt for real estate unit trust OR REIT via your IRA. But if you want a stream of passive income now, that you can go with REIT.
There are a lot of online exchange platforms that you can go with to start investing in real estate unit trust/ETF. Unit trust is usually managed – so you can talk to your unit trust agent OR you can invest in it passively (which I recommend for lower fees!) and go with real estate ETF.
If you want to learn more about the difference between unit trust and ETF, you can check out my Personal Finance Guide post here.
Real Estate Peer-to-peer Lending aka Real Estate Crowdfunding
Peer-to-peer lending or real estate crowdfunding is becoming more popular now, and if you’re thinking of investing in real estate and get a taste of the rich has been investing, well now it’s your time 😊
Real estate crowdfunding is a bit different than REIT. Although fundamentally, there’s very little difference. In REIT, real estate companies need to pay out 90% of the taxable income to investors while crowdfunding doesn’t have such rules.
You can start investing in REIT with a smaller amount of money to be compared with real estate crowdfunding. Right now, you can invest in a real estate portfolio as low as $500 with FundRise. I’ll share a list of websites/crowdfunding platforms that you can check out if you’re interested to go with this option below.
It’s pretty simple when it comes to real estate crowdfunding – developers need to source money for their new projects, and instead of going to the bank, they can crowdsource from small time investors like you and me.
Risk With Real Estate Crowdfunding
The risk can be high with this, as there’s still a possibility that the project will go sour and the company incurs losses – which will definitely affect your investment too. But on the upside, if the project turns out great, you can expect to get about 12%-15% returns in a relatively short period of time (depends on how long is the project).
It’s definitely tempting to start with this – BUT with all any investment vehicle that you want to do, please do your due diligence and research which companies for you to invest with. This goes the same with REIT too 😊
Anyway, here is the list of crowdfunding platforms that you can check out:
Now that we have got all of the options for you to invest in real estate online out of the way, now it’s time to talk about other things you can do other than investing in REIT, ETFs, Unit Trust, and crowdfunding.
Sublet The Whole House
Yes, you can sublet a house if you want. This is something that I thought of doing after I graduated – which eventually didn’t come to fruition. Simply because I spent my money on things I now cannot remember, for the life me (yay……)
Anyway, I included this here because I know of several friends and relatives of mine who have been doing this and had great results.
Subletting is basically when you are renting a house from an owner, furnish the house to make it look all pretty, and rent it out again to someone else.
First thing first, you DO need a consent from the property’s owner before doing this.
Not all of them are cool with this – I’m actually not cool with this when it comes to my own property. Lol but here me out.
There is a market for this if you research carefully. This won’t be in your typical downtown area (though this might not be for all cases). House owners who bought properties downtown usually want to maximize their full earning potential and are more likely to rent the units out straight to tenants. They might want to furnish the place and get it at a higher rent so it can cover the mortgage and possibly the maintenance fees.
I found this more successful when you approach owners who have properties outside of downtown near blue-collar areas.
One place that my cousin and I had done was a small apartment unit that’s slightly rundown near the factories area. We knew that many of the factory workers are staying in that apartment complex. So from there, we understood who is the target market that we want to focus on.
We got a unit that’s unfurnished, contacted the owner, and tell them that they will get the rent. But. we also disclose that we have a plan on renting the place out for other tenants in the future. The owner agreed since he didn’t have to make any kind of upgrades on the place and still get consistent rental income.
We tidied up the place, furnished it, and rented it out. The way we furnish the place isn’t the same as another condo up for Airbnb. We didn’t go overboard and only provide the minimum. We then charge per head or per bed.
Once you charge per head in those types of areas, it’s easier to find tenants since it won’t cost that much for them to get accommodation.
For this type of investment, you will need more money upfront to pay for the deposit and furnish the place. BUT it still won’t cost as much as buying a house. If you don’t have that kind of money yet, you can also joint venture with someone else. Someone with who you’re comfortable enough to do business.
Rent Out Rooms
This is something that I did when I was in college and it actually paid for my own rent.
It’s a lot easier to do now with Airbnb around or with the power of social media. Back then, I had to put up posters to get roommates but now I believe you can just go to Facebook groups and find potential tenants.
Once you do this, you’ll become the master tenant of the house. Basically, you need to take care of the bills and make sure the rent is paid on time to the owner. And if there’s anything that’s broken, you’ll be the middleman.
I would really recommend you do this if you have extra room/space at your house. I’ve done this twice and I’ll definitely do it again in the future cause it’s a really easy way to get some money on the side.
Sublet A Space/ Hall
Other than renting out the extra room in your house or subletting a house, another way you can do it is by subletting a space or even a piece of land.
There’s a guy whom I’ve always admired his ability to find different ways to invest. Also, how he managed to rent a piece of land, build a hall, and rent it out every weekend for weddings.
He easily earned $10,000/mo in net income with this.
Yes, you will need some capital with this but he didn’t do it alone. He had partners that did it with him.
But if you want to start small, think about your parking space. I rented out my parking space before too and easily made $100/month.
There are a lot of other ways for you start investing in real estate without buying a house. I think the easiest way for you to do is start investing online today with very little money.
Remember that not all rich people own a house. It’s perfectly okay and very possible to become wealthy without owning multiple properties and becoming a landlord. Ramit Sethi is still renting. So it’s fine.
Now tell me in the comment on which investment you’d like to try?
And if you find any value from my post today, it would make my world if you share this article with someone whom you know will benefit from it too 😊