Do you think owning property is the only way to invest in real estate? Fortunately, it’s not. There are other, less traditional ways to grow wealth through real estate — besides purchasing and managing physical property.
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If you’re looking to invest in real estate but don’t want to deal with a mortgage or tenants, consider this list of alternative ways to get started. Remember, as with any investment, it’s important to conduct research before diving in.
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Real Estate Crowdfunding
A less traditional option for investing in real estate that is gaining popularity is real estate crowdfunding. With this option, the general public pools their money through online crowdfunding platforms to purchase or invest in real estate.
Crowdfunding is more inclusive than private real estate funds and provides another way to diversify your portfolio with real estate.
“The plusses of real estate crowdfunding are lower stakes and the ability to choose specific projects that meet your interests,” said Eve Picker, founder and president of Small Change. “Once you find something that piques your interest, you can become an investor in that project with just a few clicks. It’s an easy way to start earning passive income from real estate.”
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Real Estate Investment Trusts (REITs)
When you invest in a REIT, you invest in a company that generates income from owning, operating or financing real estate. The company manages the real estate holdings and pays investors through dividends.
To invest, you can buy individual shares of a REIT company or buy shares of a REIT fund. REITs generally offer competitive returns and are a great way to diversify your investment portfolio.
House Flipping
You might consider house flipping if you have a construction or design background. To get started, you’ll want to find a home in a desirable neighborhood that is outdated and needs work. This approach will allow you to purchase the home for below market value.
Typically, you’ll buy the home with cash or a short-term loan. Once you close, you’ll make the necessary upgrades and sell the house at a higher price.
Housing flipping can be risky. Any shifts in the housing market or construction delays can impact your profit. However, when things go smoothly, there is a chance to make significant money.
”Real estate flips can be great short-term investments, but they also carry significant risks if you don’t have the expertise, resources and experience to manage renovations by yourself,” said Mark Cantrell, CFP and senior investment manager at Belwood Investments. “People watch shows on HGTV and think it might be fun to try to flip houses themselves, but they can quickly find themselves underwater as repair costs and timelines spiral out of control.”
Private Real Estate Funds
Whereas REITs are typically publicly traded through an exchange, you can also invest in a privately held real estate fund.
Private real estate funds are funds pooled from investors that buy and manage real estate in various locations. These funds can be set up in different ways, including general or limited partnerships, limited liability companies (LLCs) or S-Corps.
Private real estate funds may not be the best option for everyone. Even though they have high potential for returns, these funds typically require a significant upfront investment.
Qualified Opportunity Zone
Opportunity Zones are a tool created to encourage investment in low-income communities and neighborhoods nationwide. If you have unrealized capital gains from selling equities or real estate, you can invest them in an opportunity fund and defer paying income taxes.
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This article originally appeared on GOBankingRates.com: 5 Less Traditional Ways To Grow Your Wealth Through Real Estate