Almost 30 percent of U.S. home sales were all-cash purchases during 2013, according to Realty Trac. That means many would-be landlords hoping to buy a property to rent out for income lost out on sales to those who made cash offers. Having that much cash may seem like a roadblock, but there are creative ways to invest in real estate without becoming a landlord or raising hundreds of thousands of dollars. Here are my recommendations on 3 ways you can invest in real estate today.
Invest in REITS
Reap the financial rewards of being a landlord without dealing with tenant issues with a real estate investment trust (REIT). Sold like stocks, REITs are trusts that earn a rental income by buying and developing property. However, a REIT does not develop properties to turn around and resell them. Instead, they’re developed as part of an investment portfolio.
Unlike many forms of real estate investing, REITs must legally pay out 90 percent of their taxable income if they meet certain criteria. This means investors ultimately receive regular payments. REITs develop everything from apartment buildings to malls to cell towers to prisons and beyond.
REITs also level the playing field for those who want to get into real estate, but don’t have a ton of cash lying around. There’s no need to compete with wealthy investors or corporations buying up properties. REITs give you the opportunity to make small investments you can afford and still enjoy the perks.
Become a Private Lender
While REITs act more like a diverse portfolio of property investments, there are ways to invest directly into handpicked projects. Private lending allows individuals or companies to loan out money without the help of a bank . This technique usually works with a note and deed of trust to fund a real estate transaction. Investors typically earn up to 10 percent interest without ever dealing with rehabbing and reselling properties.
Private lenders get the benefit of earning income on their investment without the red tape and middleman of a bank. You can, however, find a third-party platform to help the process. A peer-lending site like Lending Club can connect you with those who need money for property or other assets. The site helps organize and facilitate the process and deal instead of trying to do it on your own.
Flip a House
House flipping was all the rage during the height of the last real estate bubble. It was relatively easy to get loans with little money down, enabling investors to come in and fix up properties to resell for a tidy profit. But despite the bursting real estate bubble, it’s still possible to flip a home and earn an income. According to a Realty Trac report, in the third quarter of 2013, house flipping actually increased 34 percent for homes worth $750,000 and more, 42 percent for homes priced between $1 and $2 million and 350 percent for those worth $2 to $5 million (over Q3 2012).
Need ideas on coming up with cash to support your private lending dreams? Look into creative funding techniques. If you’re entitled to a structured settlement, you could sell your future payments and use the money to reinvest in REITs, private lending or flipping a house.