5 Ways to Invest in Real Estate Without Ever Buying Property - Black Enterprise
Black Enterprise Magazine September/October 2018 Issue

When it comes to wealth building, there’s probably no more trusted bet than to invest in real estate. According to Forbes, 10% of the top fortunes in America have been built in real estate.

In fact, not investing in real estate is the main cause behind the “American wealth gap.” Which basically means that by 2053, the median black value will drop to $0. (Meanwhile, white household wealth is projected to climb to $137,000 by 2053.) Granted, major deals require large degrees of startup capital; others lots of know-how. Contrary to popular belief, you can still start accumulating wealth in real estate—even without ever buying or managing a property yourself. Here are five ways to do it.

5 Ways to Invest in Real Estate Without a Property Purchase 

REITs

REITs (short for Real Estate Investment Trusts) are publicly traded companies that own, operate, and develop real estate. By buying REITs, you get direct access to institutional-level real estate.

One of the more popular examples is Empire Realty Trust, which owns the Empire State Building. Trading at $17.26, you can actually own a piece of their portfolio.

They’re not the only one, though. A number of New York REITs own a number of Manhattan high rises–here’s another example.

In addition, REITs are liquid securities, meaning you can sell in and out any given day—something you couldn’t do if you were to own the property outright.

Popular REITs:

  • SL Green [SLG]
  • Vornado [VNO]
  • Empire Realty Trust [ESRT]

Real Estate Crowdfunding

Real estate crowdfunding is a relatively new way to invest in real estate. Back in 2014, Washington, D.C.-based firm Fundrise made headlines with their pitch for private investors to own a piece of the World Trade Center for $5,000 through crowdfunding.

Since then, crowdfunding has become an avenue for investors to gain ownership. The Tulsa Real Estate Fund recently became the first black-owned real estate crowdfund, raising nearly $10 million in one week.

The benefits of crowdfunding are similar to REITs—you buy a piece of a larger portfolio and as it grows, so does your share.

Popular crowdfunding sites:

  • Fundrise.com
  • Realtymogul.com
  • Realtyshares.com

Tax Liens

Investing in tax liens isn’t exactly the most popular method, but it’s another avenue for investors to pocket high yields. According to CNBC, around $14 billion in property taxes go unpaid each year. About a third of this is then sold off to private investors.

For an investor, it basically works like this: When a property has unpaid taxes, a lien is issued. From there, a tax lien certificate is created by the municipality that reflects the amount owed, plus interest and penalties.

These certificates are then auctioned off. The investor who is willing to accept the lowest rate of interest or pay the highest premium will be awarded the lien. (Auctions vary from state to state. Here’s some info on how it goes down in New York.)

Real Estate Mutual Funds

Mutual funds, like REITs, are publicly traded companies. And they both give you similar access to the asset. The difference between them, however, is the way they function.

REITs own properties and sell a share of the portfolio. All well and good. Mutual funds own shares of multiple stocks, offering access to a pool of different REITs. (Check out the anatomy of a mutual fund here.)

Sounds confusing? It’s not, really. By owning a piece of one REIT, you own a piece of one portfolio that owns multiple properties. By owning a piece of a mutual fund, you now own a piece of multiple REITs.

REIT ETFs

ETFs—exchange-traded funds—are similar to mutual funds in the sense that both vehicles bundle stocks and bonds together in a nice package.

The idea here, like the mutual funds, is to create diversified portfolios for investors to park their money. How does this relate to real estate? Simple. There are ETFs that track the REITs, which gives you similar exposure as the mutual funds.

A REIT ETF invests in several property-owning real estate companies at once, and of course, this diversification further mitigates an investor’s exposure (whereas the individual buying a property is betting on just that one property).

There are a few differences between mutual funds and ETFs, however—mostly tax-related. (Which I won’t get into now, but you can read about here.)

Popular real estate ETFs:

  • iShares U.S. Real Estate ETF [IYR]
  • Schwab U.S. REIT ETF [SCHH]
  • Vanguard Real Estate ETF [VNQ]

 

—Disclaimer: The opinions and financial advice expressed in this article are solely those of the contributor’s and not Black Enterprise’s. 

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Philip Michael

Philip Michael is an entrepreneur, real estate developer, and bestselling author of Real Estate Wealth Hacking: How To 10x Your Net Worth In 18 Months. Philip's a former on-air host on SiriusXM and Fuse and current publisher of real estate/personal finance site WealthLAB.co


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