Have you ever seen the TV shows that depict an individual “flipping” a house and profiting greatly from their investment? Well, those shows do not include the amount of novice, unprepared “house flippers” that fail. Those individuals often lose money, risk their credit, and can be stuck with a home that they cannot sell. For those that do not want to take that risk, can they still invest in real estate without buying a home?
Yes, of course! Below, we will discuss two investment options that do you require home ownership.
Real Estate Investment Groups
These groups are similar to a small mutual fund for rental properties. You can join these groups by investing your money through a company for an income-producing property. Real estate investment groups operate through a company. Companies begin to look for investors before purchasing or building an income producing property. Multiple investors are typically required to purchase or build a property. As an investor, you would own a percentage of the property.
Once the company has gained enough funds from investors, they will purchase or build the property. Then, the company will manage the property, maintain the property, attract new residents, and try to retain any existing residents. The company will keep a percentage of the rents in exchange for their management. These rents will be the company’s profit that they redistribute to investors.
As with any investment, there are risks. Research is crucial to minimizing those risks. Typically, there are vacancies and fees that can impact the success of the investment. But the quality of the investment, greatly depends on the company.
Real Estate Investment Trusts (REITS)
As mentioned above, real estate investment groups are created by companies. Yet, real estate investment trusts are created by a corporation (or trust). REITS invest in income-producing properties but can be purchased through major exchanges (similar to stocks). Being able to sell or buy a REIT through a major exchange makes them very liquid. Liquid investments are favorable since they can be quickly bought or sold and do not trap an investor in an investment.
REITS do not have to pay the corporate income taxes that companies must pay. The U.S. Securities and Exchange Commission requires that 90% of REITS’s profits be paid to investors through dividends. This requirement often draws investors to real estate investment trusts since a company is not obligated to distribute a set percentage of dividends to investors.
By Anna Hellman
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