Jovan Johnson, MBA, CFP®, CPA/PFS

It is well known that owning assets such as real estate is a common path to building generational wealth. Many millionaires have been creating wealth through real estate since the beginning of time. However, I do understand the stress and time commitment that comes with owning and managing rental properties (whether commercial or residential) or fixing and flipping houses. I will start by saying it is not for everyone! You probably don’t dream about receiving calls in the middle of the night about a clogged-up toilet or roach infestation. If actively owning and managing a property does not sound appealing to you, do not worry as there are many ways you can invest in real estate without taking an active role. I think it is important to at least consider adding real estate as a part of your portfolio, as it adds an additional layer of diversification. Real estate investments typically have a low correlation to the stock market. 

In fact, as I become busier in life, I have found myself leaning more toward passive real estate investing options. The main reason people do not invest in passive real estate opportunities is that they do not know about the different options available to them. In this article, I discuss three ways for you to invest in real estate without being a landlord.

1.) Invest in REITs

This is my favorite way to dive into passive real estate investing. 

Real Estate Investment Trusts (REITs) are companies that own or finance income-producing real estate across a range of property sectors. Some of the real estate property types include office buildings, retail spaces, apartments, hotels, warehouses, medical facilities, etc. These companies have to meet various requirements to qualify as REITs, which demands a greater dividend payout to investors. There are different types of REITs such as equity, mortgage-backed, and private. Most REITs are equity REITs (publicly traded). Publicly-traded equity REITs allow investors to buy and sell shares. Investors are able to benefit from both dividends and long-term appreciation. 

A benefit to owning REITs is that you do not own any building directly, which means you are not physically responsible for property upkeep. Instead, you own part of the REIT that owns and operates the properties. Just like when you own stock, you own shares of the company and have part ownership. In most cases, you can trade and access REITs the same way you would a stock or bond. 

Listed below is a summary of some of the benefits that come with owning REITs:

  • Typically high dividends (great investment option for cash flow needs or retirement)
  • Portfolio diversification (low correlation to stocks and bonds)
  • Easily accessible (open account at a reputable trading platform like Vanguard)
  • Highly liquid investments (unlike physical real estate)

Listed below is a summary of potential cons that come with owning REITs:

  • Limited tax write-offs (in comparison to owning physical real estate)

If you are a new investor looking to get started with investing in real estate without becoming a landlord, REITs are great. It is super easy to get started. All you need is an investment or retirement account at a reputable brokerage firm like Vanguard or Schwab. It takes 15 minutes or less to open and fund a brokerage account at one of these firms.

2.) Real Estate Syndications

This is another effective strategy to invest in real estate without directly owning and managing a property. In a syndication, like-minded investors pool their skills, capital, and resources together to invest in big projects such as hotels, apartment buildings, medical facilities, etc. Typically, these projects are too large for one investor to go at it alone. A syndication has two roles, a syndicator (sponsor) and an investor. The syndicator is responsible for finding and bringing the deal to the investors. They secure the property with a contract and usually manage the investment as well. This is typically a highly respected and well-known professional. 

For example, a sponsor might present a deal where they’re purchasing a 500 unit apartment building and are looking to raise $30 million from investors to complete the deal. As an investor, you invest with a sponsor who puts the deal together and runs the deal. It is on you to perform your own due diligence and research before investing, and once you’re in a deal, expect to stay in the investment for the full time. 

Typically, deals can run from 3-7 years, depending on the specifics. As an investor, your only expectation after making the investment is to check for deposits into your bank account and file taxes on it each year. 

Listed below is a summary of some of the benefits that come with participating in a real estate syndication:

  • Typically high dividends (great investment option for cash flow needs or retirement)
  • Portfolio Diversification
  • High upside potential

Listed below is a summary of some of the cons that come with participating in a real estate syndication:

  • In most cases, you must be an accredited or sophisticated investor
  • Illiquid investment
  • Not easily accessible
  • Limited tax write-offs (in comparison to owning physical real estate)

3.) Fundrise

Fundrise is another great way to get started in real estate investing. I love how easy it is to get started with them. Fundrise makes it simple and cost-effective for almost anybody to start investing in real estate. You can get started with as little as $10. The company is a crowdfunding platform, where they pool your money together with other investors to buy portions of properties ranging from debt to equity, commercial to residential, and more. This blend of real estate investments increases the diversification in your overall portfolio.

In comparison to REITs that are mostly publicly traded, this platform offers access to private real estate investing. As a private real estate investment, it is not as liquid as a publicly-traded REIT. Fundrise is a great investment option to consider if you have a time horizon of 3-5+ years for your money. There could be penalties associated with early funds withdrawal. 

Just like with REITs and Real Estate Syndication deals, you can expect a nice mix of potential dividend payouts (cash flow) and long-term appreciation. 

Listed below is a summary of some of the benefits that come with investing with a crowdfunding source like Funrise: 

  • Typically high dividends (great investment option for cash flow needs or retirement)
  • Portfolio Diversification 
  • Easily accessible 

Listed below is a summary of some of the cons that come with investing with Fundsire or other crowdfunding platforms: 

  • Illiquid investment
  • Limited tax write-offs (in comparison to owning physical real estate)

Final Thoughts

Real estate investing is available to everyone. Do not allow limited time or money to stop you. There is a real estate investment option for everyone. Find the option that fits your needs, risk tolerance, and lifestyle. For me, I like the low-cost passive opportunities such as REITs and Fundrise. 

In order to find the best solution, you must perform proper due diligence and research upfront. There are hundreds, if not thousands, of resources (blogs, podcasts, courses, books, and conferences) available to educate yourself on real estate investing. Take advantage of these resources and decide what route is best for you. 

Disclosures

None of the information provided is intended as investment, tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement, of any company, security, fund, or other securities or non-securities offering. The information should not be relied upon for purposes of transacting securities or other investments. Your use of the information is at your sole risk. The content is provided ‘as is’ and without warranties, either expressed or implied. Piece of Wealth Planning LLC does not promise or guarantee any income or particular result from your use of the information contained herein.