Give me at least three methods of real estate investment immediately. Real estate investment trusts (REITs), long-term rental homes acquired through a firm like Roofstock, and quick house flipping are probably the first things that sprang to mind. These are all sound methods that I’ve employed myself throughout the years.
However, the fact that they are the most often chosen paths doesn’t guarantee that they’ll be the most fruitful or even the most secure investments in real estate. Indeed, in every market or asset class, it is frequently the case that less mainstream subsets produce superior returns. These are the “blue oceans” that business experts talk about, where there is less rivalry and hence more opportunity.
Alternative Real Estate Investment Strategies
Look into these less common real estate investment techniques if you’re interested in the field but want to broaden your horizons. The status quo is tedious.
Also, remember that the landscape of the real estate market is ever-evolving. In recent years, a plethora of online real estate investment platforms that don’t fall into any of these buckets have emerged.
Some, like RealtyMogul, operate very similarly to publicly traded real estate investment trusts (REITs), providing investors with exposure to a range of commercial real estate assets that are typically expanding rapidly.
Investments in other properties, such as Concrete, offer additional leeway and convenience to its users. Regular investments can be made automatically for members of Concrete, and withdrawals require only one week’s notice under normal conditions.
In sum, it’s important to keep an eye on new trends in the market while researching these potentially lucrative alternatives to conventional real estate investing. Most likely, it won’t be too long before another chance presents itself.
In light of the industry’s meteoric rise over the past decade, it’s surprising to learn that shared office spaces are just a decade old.
In 2005, San Francisco was home to the world’s first coworking space, and in the years that followed, many more of these establishments opened in otherwise prohibitively costly urban hubs across the world. In 2009, a tiny trade association established The Global Coworking Unconference Conference, the inaugural industry conference.
Since then, the sector has exploded in popularity, growing from a grassroots phenomenon among independent entrepreneurs to one of the decade’s most significant commercial real estate developments. Coworking Resources, a trade organization, estimates that the number of coworking space members will exceed 1 million in the United States by 2022.
Since 2010, flexible office space has risen at a quicker rate than any other section of the business, according to JLL, a property consultancy firm.
Sharing office space with others is beneficial for both employees and business owners. Everyone, from solo entrepreneurs to those in need of a location to set up shop with their computers, may chip in to cover the rent at the shared office. In terms of office space, startups have the freedom to expand or contract as needed. Since not every available desk in an office will be used at all times, landlords might charge for more workstations than they really have.
Strangely, established businesses are no longer the fastest-growing demographic in coworking spaces. Global coworking pioneer WeWork told Curbed that corporate clients have been driving membership growth over the past few years.
Tips for Putting Money into Shared Offices
Buying shares in a real estate investment trust (REIT) that owns coworking spaces is the simplest method to become involved in this market. Some well-known examples are Boston Properties (BXP) and Washington REIT (WRE). You may acquire them from most financial institutions, including J.P. Morgan Investing.
You may also try getting your hands dirty. It makes sense to rent out any unused portion of an office building that you own or lease. No, you wouldn’t be the only one. According to industry newspaper Deskmag, over two-thirds of all coworking spaces in the United States are run as a side company by their proprietors.
If you want to go for broke, you could even try opening your own coworking space. There isn’t much complexity to the business model: you rent out office space and then sublease it by the office, workstation, or shared-access lounge.
I’m a company owner who uses a coworking space, and I couldn’t be happier about it. I have a nice office with a view of the ocean and a mangrove forest, and I pay less than a hundred dollars a month for the privilege of working here.
The nature of work is evolving. According to a recent report by CNBC, seventy percent of office workers throughout the world telecommute at least once a week. After the 2020 coronavirus epidemic, Gallup found that 62% of all American workers did some or all of their jobs from outside the country. Not everyone who works from home like to do so, and there are many who would rather go back to an actual workplace.
The benefits of purchasing undeveloped land are numerous and varied. It requires far less maintenance and management than either residential or commercial property. There were no late-night maintenance or repair calls from upset tenants about a blown light bulb.
Keeping it running is also a breeze and won’t break the bank. If you acquire raw land outright with cash, your only recurring expense will be property taxes, which are often modest due to the low value of raw land.
In many regions, investment competition in land appears to be negligible. Sometimes, when you contact a landowner about purchasing undeveloped land, you will be the first potential buyer to approach the owner about purchasing the land. Raw land owners have no way to profit from their property and hence generally settle for a pittance.
Unlike residential rental properties, which are subject to stringent regulations, raw land is hardly governed at all. Look no farther than the eviction moratoriums of 2020 to see why regulation matters to real estate investors: many landlords were left with large mortgage payments but no rental revenue and no ability to replace non paying tenants with paying ones.
How to Invest in Undeveloped Land
Potential land buyers might employ a number of tactics. Doing nothing is the first option. You can buy the land now and sell it later when its value has increased.
Land, when purchased at a discount, can also be flipped for a profit. An investor I know in the land market typically provides seller loans after purchasing property at a discount. Simply because he can, he overcharges for the land and demands exorbitant interest rates. Many homebuyers are ready to pay sky-high interest rates for a land loan because these loans are not regulated like mortgages. To add insult to injury, the foreclosure procedure for commercial properties moves far more quickly in the event of a default.
You might also make enhancements to the land. In order to develop a piece of land, one may apply for the necessary permits and approvals, such as rezoning, water and sewage line installation, subdivision, and so on. After that, you have the option of selling the land as “buildable” or developing it yourself. If the latter, you may either keep the home as a rental for the foreseeable future or put it up for sale after the work is done.
No one is requiring you to construct anything on the land. You could farm it or put it to some other non-construction use, then either keep it or put it up for sale.
Land investment is something that most would-be real estate investors shy away from because of a lack of familiarity with the process. In any case, purchasers may rapidly learn how to analyze and invest in raw land, as well as the traps to avoid, with the right amount of training and knowledge. Keep in mind that rezoning property isn’t always an option, and that many local governments have tight zoning regulations.
Mobile and prefabricated houses, like undeveloped land, are often avoided by the general public since they are not considered attractive. They’re so unattractive that some investors sneer at the concept. It’s good news for those who have invested in mobile homes, as they may now smile all the way to the bank.
There is a significant technical distinction between prefabricated houses and mobile homes, which is worth pausing to discuss. Previously unregulated mobile houses were given certain guidelines by the Department of Housing and Urban Development in June 1976. A “mobile home” is a non-code-compliant transportable construction created before 1976, whereas a “manufactured house” is a factory-made residence established after 1976 that must adhere to building codes. Still, laypeople tend to use both phrases interchangeably.
Mobile houses can be affixed to their sites permanently or placed in designated parks. Water, sewer, and trash service are usually included in the monthly lot rent at mobile home parks. If you’re looking to buy a mobile home in a park, know that you’ll only be purchasing the house itself and not the property on which it sits (more on mobile home park investing shortly).
How to Make an Investment in Manufactured Homes
Buy and holding is the most typical investment method for mobile homes. An investor buys the house (and maybe the land if it’s in a park) and then leases it out to a tenant on a long-term basis.
There is a vast variety of prefabricated houses available for rent, including both bigger and smaller options in varying states of repair and with a wide variety of interior amenities and finishes. Some are luxurious mansions with all the latest conveniences, while others are squalor.
The quality of parks varies widely as well, and while investors always have the option to relocate the property, doing so is not a simple procedure and can cost more than the home itself. It’s important to research the park itself, not just the house, before making a big purchase like this. For example, some parks have age limits, such as residents must be 55 or older to live there.
Parks for Mobile Homes
Mobile home parks are available for purchase instead of single manufactured or mobile homes. You are effectively purchasing both the land and the park operation. A monthly lot fee is charged, which may or may not include the cost of utilities. Like any other rental agency, if a renter doesn’t pay their rent, you have to go through the eviction process.
Many real estate investors avoid the mobile home park buying market for the same reason they avoid buying manufactured houses. Investors that are comfortable with holding a wide variety of assets can benefit from this situation.
Investing in mobile home parks has several advantages, one of which is that you won’t be responsible for repairing the houses there. The only things you’re responsible for are the grounds and communal spaces, as well as the upkeep of the water and sewage systems.
Having little overhead and expenditures and strong profit margins is a direct result of this.
Since it costs a lot to relocate a prefabricated house, turnover rates in mobile home parks are often lower than in other types of rental businesses. A person who purchases a mobile home is essentially purchasing a permanent residence. For the typical landlord, the bulk of the effort and cost is concentrated during tenant turnovers, hence a decrease in this metric is highly desirable.
How to Make an Investment in Mobile Home Parks
Mobile home parks, like most other things, may be purchased over the Internet. Mobile Home Park Store is the go-to destination for buying and selling parks, with hundreds of parks for sale at any one moment.
The commercial real estate powerhouse LoopNet also offers mobile home parks for sale. It’s possible to locate parks up for bidding on auction websites like Auction.com and eBay.
Before you spend any money, and especially on a marketplace where buyers and sellers interact directly like eBay, be sure you’ve done your research. Whenever transferring ownership or verifying title, it is best to utilize a neutral third-party title company.
Of course, many investors in real estate don’t just buy what’s on the market. Risk-takers send direct mail, make cold calls, or even drop by in person.
Mobile home parks may be quite profitable, which means they can cost a lot of money. A park in a prime location that brings in a lot of money will cost you seven figures.
Finally, business owners should know that mobile home parks may be a great source of supplementary income. Laundromats, mini-markets, and other onsite facilities can be installed by park owners to increase their revenue.
Websites for Real Estate Crowdfunding
Crowdfunding platforms, a relatively new addition to the possibilities for investing in real estate, typically provide high returns to investors. They also provide simple diversification across a wide range of property markets, including but not limited to residential, office, retail, and industrial.
There is a wide range of investment strategies employed by the many real estate crowdfunding platforms. All investors receive the same return from a single pooled fund or from a number of large pooled funds. Money from investors is used to purchase, renovate, maintain, and occasionally sell real estate. Very similar to investing in a real estate investment trust (REIT), but with less restrictions from the SEC and no requirement to distribute 90% of net income as dividends.
Alternatively, investors might use crowdfunding platforms dedicated to real estate to help pay for individual properties. A greater rate of return is granted when the lender perceives a higher level of risk associated with the borrower, the property, or both. Even if investors don’t have any direct say in the repair or administration of the property, the openness of the crowdfunding model is a welcome bonus.
There is a lack of liquidity, which is a key difference when compared to real estate investment trusts. For investors, the speed with which they may purchase and sell real estate investment trusts is a major perk of the asset class. However, crowdfunded debt is not traded publicly, and investors often commit to holding their funds for a minimum of six or twelve months.
How to Make Money from Real Estate Crowdfunding Websites
It’s important to note up front that most real estate crowdfunding investment programs only take cash from accredited investors. Most likely, you are not an accredited investor if you have to ask what one is. Investors in this bracket have a net worth of at least $1 million or earn at least $200,000 per year ($300,000 for couples).
However, there are a select few real estate crowdfunding platforms that focus on attracting and serving non-accredited investors. Fundrise and Streitwise are two examples of crowdfunding platforms that allow users to make direct investments in real estate via a fund.
Fundrise requires only $500 to open an account and offers returns between 8.7 and 12.4 percent. Since its start, RealtyMogul has required a minimum investment of $1,000 and distributed around 8% each month.
Groundfloor is a platform that allows non-accredited investors to put money into specific real estate developments. Your return on investment might be anywhere from 5% to 25%, depending on the quality of the property and the creditworthiness of the borrower. With terms ranging from six to twelve months, this type of loan requires a short-term commitment.
AcreTrader is another option for purchasing farmland for investment purposes. Since 1990, farmland has never produced a negative annual return, making it an increasingly attractive investment option. Actually, putting away $10,000 in farmland in 1990 would have yielded a return of about $200,000.
Before putting your money into a crowdfunding platform, you should always conduct your research. Inquire about the probability of default, and pay special attention to the length of the financial commitment.
A promissory note is a formal record of a loan made by one party to another. It is common practice to sign a promissory note when borrowing money, such as for a mortgage. Rather than going to a bank, a lot of people who go into real estate investing borrow money from friends and family. They borrow money from a private investor by signing a promissory note with terms and conditions that are mutually agreeable.
I like to put my money into private notes. To provide just one example, a couple in Ohio was able to retire early on the rental income from their homes and live well without working, but they haven’t stopped buying other properties to add to their passive income portfolio. We’ve both been delighted with the return on my $10,000 investment with them thus far. They’re able to raise money from a wide range of sources, including individual donors like me, and we all stand to gain from their consistent and solid returns.
Nevertheless, there is some danger involved. The only option I have if the borrowers default is to sue them, perhaps win, and then try to collect on the verdict.
How to Make an Investment in Private Notes
Private notes, in contrast to the other available choices, are predicated mostly on trust. You put your money into the hands of a person you know and trust implicitly because they have a proven record of success in the real estate investing industry.
Start learning about the business and meeting people involved if you don’t already know any real estate investors. Take part in a local real estate investment club and be there at each and every meeting for a period of months. Make connections with real estate brokers, wholesalers, and turnkey sellers in your area who are experienced in dealing with investors.
Get involved with the neighborhood of real estate investors. In a short amount of time, you should be able to tell which investors have a proven track record of success. Learn more about them as individuals. As you get to know them better, you might broach the topic of financial investment options, either as a lender or a partner.
In addition, there are internet marketplaces, such as Note Investor, where you may purchase private notes. Just make sure to properly investigate any potential debtors before lending them any money.
Syndications of Real Estate
An “operator” or “sponsor” is a main real estate investor who seeks out “silent partners” to invest money in a real estate syndication. Partners who do not actively participate in management are referred to as “members” or “limited partners.” They are not just lenders as on a crowdfunding site or private note, but rather actual partners with a fractional portion of the ownership.
Let’s say Odelia finds a great apartment complex for sale in the $2 million range and decides to make an offer. She has $500,000 available for investment and plans to use a real estate syndication to generate the remaining $1.5 million. Odelia, the manager, communicates the offer to you. You trust her judgment, so you put in $100,000, and Odelia finds a few other backers to bring up the remaining $800,000.
You have a 5% share in the apartment complex because you contributed 5% of the funding. Your investment is safer under your control. You get all the above-the-line deductions, depreciation, the 20% pass-through deduction, and the option to postpone taxes on capital gains via a 1031 exchange that real estate investors get since you are a genuine owner as opposed to merely a loan.
How to Make Money Investing in Real Estate Syndications
Usually, only high-net-worth individuals (HNWIs) are allowed to participate in real estate syndications. Accredited investors who network with local investors who focus on large-scale real estate developments can acquire access to these deals.
Just who is putting money into residential complexes around here? At the top of office towers? Do some research and make some connections with individual investors that are interested in purchasing commercial property. Even if they don’t regularly attend club meetings, other investors in the area will be able to tell you who is active in the field.
Before putting up any cash, be sure you fully grasp the transaction’s parameters. When investing in a real estate syndication, most projects are long-term commitments from which investors cannot easily withdraw at will.
All of the aforementioned other investments have varying degrees of accessibility. Investing in these businesses typically necessitates a high level of expertise, a well-developed network, or accreditation as an institutional investor. However, the returns might prove bigger than ordinary stocks for individuals prepared to invest some time in learning from or networking with real estate investors.
Crowdfunding platforms and real estate investment trusts (REITs) that buy up coworking spaces are two of the simplest alternative real estate investments mentioned above. It’s a good place to begin learning about alternative real estate investments, and if you like what you find there, you can always learn more.