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Daniel Boltinsky
April 4, 2024
There's a reason we call something "as safe as houses"— real estate investing has long been considered the most lucrative way to build wealth, but also one of the safest.
However, the traditional method, where you buy and own property, isn't feasible for most people. It requires too much capital up front, too much expertise, and, with rentals, time and resources to manage.
The good news is, there are alternative ways to invest in real estate without actually buying property.
In this article, we'll explore the concept of real estate investing without ownership and how it can be a viable option for those looking to enter the real estate market.
Real estate investing without ownership, also known as indirect real estate investing, is a method of investing in real estate without actually owning the property. Instead, investors put their money into real estate investment trusts (REITs), real estate crowdfunding, or real estate investment funds (REIFs). These options allow individuals to invest in real estate without the hassle and financial commitment of owning and managing a property.
Tokenized assets, REITs, real estate crowdfunding, and REIFs all operate differently, but they all offer investors the opportunity to invest in real estate without owning property.
Tokenized assets: By leveraging blockchain technology, a new breed of platform allows individuals to own fractions of real estate properties or their financial benefits, facilitating passive income generation from rents and potential asset appreciation. This model simplifies the investment process, reduces entry barriers such as high upfront costs, and aims to provide secure, sustainable investment opportunities within the realm of EU real estate, underpinned by European laws.
REITs: These are the most well-known non-ownership RE investment vehicles. But what are they? REITs are companies that own and operates income-generating real estate propertiesᅳessentially, they're real estate experts and professional operators working on the investors' behalf. Investors buy the shares, any they earn a portion of the rental income and property appreciation without owning the property outright. REITs are required to distribute at least 90% of their taxable income to shareholdersᅳnot bad for those seeking passive income.
Real Estate Crowdfunding: Real estate crowdfunding platforms let you invest in specific real estate projects, such as a new development or a fix-and-flip property. These have popped up all over the place and have their own type of legal classification. Crowdfunding platforms give users the power to the project you see fit, you'll typically receive a return on your investment through rental income or property appreciation.
Real Estate Investment Funds: Similar to mutual funds, REIFs pool money from multiple investors to invest in a portfolio of real estate properties, REITs and other vehicles. However, these are private funds that aren't liquid on the stock market, and they don't necessarily earn rental income like REITs. By participating in a real estate investment fund, earn a portion of the rental income (if applicable) and property appreciation without owning the properties themselves.
So why would somebody forego the benefits of having a property they have the key to? Without the hassles of ownership, these models have several advantages over traditional real estate investing. Here are some of the key benefits:
The responsibilities that come with owning a rental property can be tremendous. You need to:
Simply put, with real estate investing without ownership, investors can enjoy the benefits of rental income and appreciation without the hassle of managing a property.
Investing in real estate without ownership allows individuals to diversify their investment portfolio quickly and easily. Investors can deploy their funds across multiple properties instead of putting all their money into one property, reducing their risk. With tokenized assets, people can even buy into specific projects they like across the world and receive rent from tenants.
The financialization of real estate has made property unrealistically expensive for most people, especially in popular real estate markets. Real estate investing without ownership allows individuals to invest in real estate with a lower initial investment, making it more accessible to a broader range of investors.
Is passive income really passive if it comes with loads of work and responsibilities? Despite what gurus say, being a landlord is anything but passive, and one of the main advantages of real estate investing without ownership is the potential for truly passive income. With tokenized assets, REITs, real estate crowdfunding, and real estate investment funds, investors can earn rental income without having to manage a property actively.
As with any investment, there are potential risks associated with real estate investing without ownership.
It's important to understand these risks before making any investment decisions.
Real estate markets can be volatile, and the value of your investment can fluctuate.
This is especially true for REITs and REIFs, which are traded on the stock market and can be affected by market conditions.
When investing in real estate without ownership, investors have little to no control over the properties they are investing in.
This means they have no say in how the properties are managed or any decisions that may affect their investment.
Investing in REITs, real estate crowdfunding, and REIFs often comes with fees and expenses, which can eat into your returns.
It's important to carefully consider these costs before making any investment decisions.
MetaWealth has tokenized over 70 units and distributed $200K+ to its users using the tokenized asset model. What’s more, they distribute rents directly to users across the EU, no matter the location of their physical real estate portfolio.
One example of a successful REIT is American Tower Corporation (AMT).
AMT is a real estate investment trust that owns and operates cell towers and other wireless communications infrastructure. The company has seen steady growth over the years and offers investors a dividend yield of around 2%.
Real estate crowdfunding has become increasingly popular in recent years, with platforms like Fundrise and RealtyMogul offering investors the opportunity to invest in specific real estate projects.
For example, Fundrise recently raised $1 billion in capital for a new real estate investment fund, giving investors the opportunity to invest in a diversified portfolio of properties.
One example of a successful REIF is the BlackRock Real Estate Securities Fund (BGRSX).
This fund invests in a portfolio of publicly traded real estate securities, including REITs, real estate operating companies, and homebuilders. The fund has seen steady growth over the years and offers investors a dividend yield of around 2%.
Real estate investing without ownership can be a great option for those looking to invest in real estate without the hassle and financial commitment of owning a property.
However, it's important to carefully consider your investment goals and risk tolerance before making any investment decisions.
Before investing in real estate without ownership, it's important to consider your investment goals.
Real estate investing without ownership comes with its own set of risks, and it's important to assess your risk tolerance before making any investment decisions.
If you're uncomfortable with market volatility or lack of control over your investment, real estate investing without ownership may not be the best option for you.
Real estate investing without ownership offers a viable alternative to traditional real estate investing.
With options like REITs, real estate crowdfunding, and REIFs, individuals can invest in real estate without the hassle and financial commitment of owning a property.
However, it's important to carefully consider your investment goals and risk tolerance before making any investment decisions.
With the right approach, real estate investing without ownership can be a lucrative way to build wealth and generate passive income.
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