Real estate is a great way to make money, because unlike investing in stocks, property values are fairly stable and tend to increase reliably over time. However, the biggest problem with investing in real estate is that it usually involves property, which is expensive. Unless you have a large sum of cash laying around, buying a house to add to your portfolio may not be an option.
The good news is that you don’t need to buy property to invest in real estate. As counterintuitive as that may seem, there are several profitable real estate options available to you. Some will require you to have cash on hand, but others will simply require determination or flexibility. But regardless of whether you have money or tenacity, we can guarantee that there’s something for you in this guide.
Wholesale real estate
When it comes to investing in real estate with no money, there’s no strategy more popular or accessible than wholesaling real estate. Wholesaling is the practice of getting distressed properties under contract at below-market value and then selling the contract and the right to buy the property to another investor.
There’s more to the wholesaling process, but it’s popular because it doesn’t require investors to buy anything. Unlike flipping, a wholesaler rarely closes on a property, and they don’t have to make any renovations or do any work to the house. A wholesaler is simply a middleman that connects a homeowner who needs to sell to an investor who wants to buy their house. In exchange for making this connection, wholesalers receive an assignment fee, which can be several thousand dollars or more.
Wholesaling is a great way to make money on real estate if you don’t already have a property, but if you’re ready to sell your own property, there’s a way to make residual income off of it for decades. This strategy is called seller financing, and it’s a type of creative finance strategy.
In a seller financing situation, a buyer doesn’t work with a bank to secure a mortgage. Instead, they take possession of the property without paying for it in full and make payments to the seller every month. As you can imagine, this strategy won’t generate a lump sum of cash up front, but it will give you a monthly income stream.
The best part for you as the seller is that if the buyer defaults and can’t make their monthly payments, you can repossess the house in the same way that a mortgage company would. Then you can sell or repeat the seller financing process over again.
Hard money loans
Hard money loans are another type of creative financing, but this time, you’ll need to have a lot of cash on hand. In a hard money loan scenario, you’ll become a lender and fund someone else’s real estate purchase. However, the property they buy will be listed as collateral for the loan.
If the borrower defaults on the loan at any point, you’ll repossess the property, meaning it will become yours. While this won’t return the cash that you lent for the purchase, it will profit you in a few ways.
For starters, the property will most likely increase in value before the borrower defaults, meaning you’ll receive an asset that’s worth more than you lent for it. Secondly, if the borrower defaults after several years, you’ll receive the asset in addition to the money you received in the form of monthly payments. Finally, assuming you charge interest on the loan, your investment will generate passive income monthly.
Real estate exchange traded funds
Real estate investment trusts (REITs) are like real estate mutual funds. They allow investors to put small amounts of money into jointly-owned properties without spending the full amount it would take to purchase a property.
REITs are popular because they offer people who don’t want to own a rental property the chance to make money in real estate. But REITs aren’t just for making money in the short-term. They’re also great because they offer a low cost buy-in to one of real estate’s most popular benefits: consistent valuation.
Unlike the stocks you would normally buy in a mutual fund, real estate generally appreciates over time. It can lose value in the short-term if there’s an economic downturn, but it almost always recovers well. Its value also changes much more slowly, while stocks can be an extremely volatile investment. So whether you’re new to the real estate market or you’re just trying to make a bit of money without investing in your own property, a publicly traded REIT may be a perfect option for you.
Profiting off of your own house
Many prospective real estate investors lose hope when they start considering how expensive rental properties are. Not only do they usually require a large down payment if you don’t have the cash to buy them outright, but they can also come with higher interest rates and other stringent loan requirements.
So if you already own a home, buying a separate rental property can be prohibitively expensive. However, the fact that you’re a homeowner gives you a unique way to invest in real estate, cover your living expenses, and create a passive income stream. This strategy is known as house hacking, and it’s as simple as renting out part of your home!
Off the bat, this might seem unattractive. Bringing a stranger into your house can eliminate your privacy and create awkward situations, at best. But there are several benefits to house hacking, and there are ways to make it non-intrusive.
For starters, house hacking can generate a lot of revenue. Depending on the size and quality of the space you have available to rent, you may be able to charge a premium, which can cover your living expenses and even generate a monthly profit. It’s also cost-effective because it doesn’t require you to buy a new house.
Lastly, it gives you an opportunity to help someone if you don’t want to charge a premium. Many homeowners in college towns use house hacking to help students or recent graduates get on their feet without paying thousands of dollars for a corporate-owned apartment. In this situation, everyone wins.
Another key house hacking benefit is that it doesn’t have to impede your daily life. If you own a house with a basement, you can turn it into an apartment that’s separate from the rest of the house. You can also get creative with your entrances and exits, practically creating two or more completely separate living spaces that don’t overlap.
Invest in construction
As you can see, not every REI strategy involves buying your own house. But if you’re looking to get started as an investor or you simply want to diversify your portfolio, you can also invest in home construction.
Real estate companies that focus on construction are a great way to make money because they may offer smaller investment opportunities. They also usually offer more stability than other stock options. While the real estate market has crashed in the past, it usually does so at a slower rate than stocks in other industries, which can fluctuate several percentage points without notice.
Investing in a construction company will also give you the chance to learn more about the industry before making a big investment. Not only will it give you a monetary incentive to keep up with the market, it will also give you a company to track and learn from.
The popular image of a real estate investor is someone with at least 10 rental properties and enough cash to buy as many more as they want. For people who aren’t already financially independent, this image can be quite disheartening. But the good news is that you don’t have to buy a property to get started as an investor.
If you’re wondering how to invest in real estate without buying a property, there are six great options that are available to almost anyone right now! If you don’t own anything and don’t have much money, you can wholesale, invest in a REIT, or invest in construction. If you have cash on hand but want a more flexible investment option, you can offer another investor a hard money loan. And if you’re already a homeowner, you can leverage seller financing and house hacking to earn passive income.
However, the strategies that you can leverage aren’t the most important takeaway from this guide. The most important thing to realize is that if you’re willing to get creative, there’s are a wealth of opportunities available. If you remain ready to take advantage of them, you’ll eventually amass enough wealth to build an investment portfolio.