5 Ways to Invest in Real Estate Without Owning Property

If you’re only starting your journey toward real estate investments, you may consider property ownership synonymous with them. Surely, it may seem impossible to invest in real estate without owning property. That’s often because, in mainstream discourse, the two main investment types involve buying and flipping houses or maintaining property and tenants. And both, by definition, involve property ownership.

There are more ways to do so, however. That is fortunate, as the US is in a recession – by popular definition, anyway. So, if you don’t have considerable capital or don’t want to shoulder the responsibility of property maintenance under this climate, you still have notable options to explore.

Why invest in real estate?

First things first, let us quickly outline why real estate investments are worth considering to begin with. You may find this brief section reassuring if you already have some such reasons.

There are numerous advantages to investing in real estate, but the main ones are arguably four:

• Predictable cash flow. Real estate investments can generate considerable cash flow with mortgage payments and operating costs. This perk doesn’t just ensure income, but it also enables predictability as you build up equity.

• Tax breaks and deductions. Another notable benefit of real estate investments comes in tax benefits. Deductions on reasonable costs of owning, operating, and managing a property, alongside steady depreciation, can significantly lower final taxed income.

• Portfolio diversification. One of the most famous perks of real estate investments lies in their ability to diversify one’s portfolio. Since the real state rarely correlates with other major asset classes, such investments can reduce volatility and add security.

• Inflation hedge. And finally, real estate investments tend to constitute an inflation hedge as GDP growth drives up real estate demand. And should property values rise higher than the rate of inflation, which they tend to do, that will also yield capital gains.

5 ways to invest in real estate without owning property

Considering the above, one may avoid ownership and maintenance hassles and opt for indirect real estate investments. As the name suggests, these types of investments are not direct and, thus, don’t require property ownership.

In no particular order, the following are five of the most common or notable ones to consider.

1. Real Estate Investment Trusts (REITs)

A particular type of indirect real estate investment comes in REITs. These companies own and manage income-producing real estate and other assets linked to real estate. One can invest in such companies through stock, mutual funds, or exchange-traded funds and receive regular cash flow through dividends.

Beyond passive involvement, a perk on its own, REIT investments also allow for focused investments, as they can involve residential, commercial, or other real estate. For instance, in recent years, ample reasons to invest in FL commercial real estate have emerged, including lower vacancy rates and higher rents compared to national averages – and REITs are an excellent way to invest in this area.

2. Real estate-focused companies

If REITs are unsuitable, you may consider stock investments in other real estate-focused companies. Many companies that own and manage real estate may not qualify as or be structured like REITs, or such practices may not be their primary service. Nonetheless, investing in such companies would still offer a way to invest in real estate without owning property – even if even more indirectly.

Notably, such companies tend to pay much lower dividends than REITs. However, it’s not uncommon that they offer more freedom to reinvest profits; consider such examples as hotel chains and shopping mall managers for typical cases.

Such investments should still be approached like any individual stock investment. Since portfolio diversification is a primary perk of such endeavors, avoiding high investment concentrations is typically best.

  3. Online real estate platforms and crowdfunding

Another notable option, albeit a rather newer one, is online real estate platforms. Such platforms are on the rise and offer a new connection between crowdfunding and real estate. Specifically, they bring together real estate developers and investors, allowing multiple investors to fund real estate projects. Investors get equity in the projects and distributions in return for their funding.

This option does come with some notable perks; investors can fund projects without direct property ownership, for one, and they can do so with much less capital than actual ownership requires. In turn, investing in a portfolio of projects is also more feasible than singular investments.

However, there are two notable factors to consider as well. For one, investors don’t need to be accredited. And more notably, such investments are long-term and thus less liquid than others.

4. Wholesaling and subleasing

If none of the above suits you, there are more ways to invest in real estate without owning property. Depending on your capital cushions and strategies, you may consider wholesaling and subleasing for a notable pair of options – and opt for either or both.

Wholesaling is a more established means of real estate investment, as it’s essentially a form of property flipping. For it, the investor agrees to buy a property they believe is underpriced and then sell their right to the contract to another investor for a fee instead of buying it themselves. This practice also requires less capital, as the investor is not purchasing the property.

Subleasing, instead, is more creative and a relatively newer practice. As the name suggests, subleasing has the investor lease a property long-term and then sublease the property for short-term rental. That also bypasses the need to own property and can still generate income. However, the original lease needs to allow this strategy to begin with, and the real estate area must be conducive to this strategy for it to pay off. 

5. Investments in home construction

Finally, if you have some risk tolerance and prefer long-term investments, consider investing in home construction companies. The homebuilders' industry is yet another way to benefit from real estate investments without direct ownership.

For this type of investment, one can purchase shares of exchange-traded funds or invest in such companies directly. Like other investments, these can prove notably lucrative as the housing market climbs. However, investment returns may decrease if the economy tightens and interest rates rise. Investors typically need to hold onto shares for about a decade to account for home value fluctuations and price volatility. Still, in return, they can enjoy more moderate risks for long-term investments.

Conclusion

In summary, there are ample ways to invest in real estate without owning property. Especially if you lack considerable capital or would rather forgo the hassle of property management, any of the above may warrant your consideration.

As with all kinds of investments, you should remember to strategize and apply caution. Risk assessment, proper diversification, and market research are always imperative as general practices. If you opt to crowdfund projects alongside other investors, you should verify that your investors are accredited. If you opt for subleasing, you should ensure that your original lease allows it. However, with due diligence, you can safely invest in real estate without direct ownership – and often see considerable returns.