How to Make Money in Real Estate Without Owning a Property
There's a clever subset of real estate investors who aren't landlords at all. Here's how you can make a profit from real estate without owning a single rental property.
Did you know that you can make money from real estate without ever owning a home? Not only is it possible, but many people are doing it right now.
There's a subset of real estate investors who avoid the hassle of the three Ts: tenants, taxes, and trash. That pesky trio can make being a landlord a daunting task for property owners trying to eke out meager margins. Plus, the mental load and debt burden can make some think that real estate just isn't worth it.
Think again. Here are just a handful of ways to profit from real estate without owning a single rental property.
1. Sublet your rental.
Subletting happens when a tenant rents out their space to another person who isn't on the original lease with the landlord. This could be a temporary arrangement while the lessee is away on business or vacation. But it could also be a long-term arrangement where there's just one lessee who takes responsibility for renting out vacant rooms in an apartment or house.
If this is allowed in your lease (not all leases allow it), it is highly likely that there's no limitation on how much you could charge. In cities without rent control, a lessee could demand whatever the market allows. This could mean that the subletter ends up footing the bill for the majority of the rent, allowing the leaseholder to profit from the savings on their own housing costs.
2. Get into real estate investment trusts.
Real estate investment trusts, or REITs, function a bit like mutual funds. A company owns a portfolio of properties: commercial, residential, land, and more. They seek investors to pay the development costs and to float operational expenses for the properties they own. And when those properties become profitable, the investors get dividends.
There are some private REITs, but hundreds trade publicly on the stock market. This form of investing is perfect for someone who wants to be totally hands-off and enjoys hedging their bets across many different types of properties around the country. If you still can't decide, consider Real Estate Mutual Funds and Exchange Traded Funds (ETFs), which can pool together a few different REITs so you don't have to pick just one.
3. Crowdfund your investment.
Crowdfunding isn't just for donations and charities anymore. These days, you can invest in major real estate deals by using a very similar funding structure on sites like Fundrise, Realty Mogul, and Peer Street. Each has different minimum investments and vetting requirements, but most people get stuck trying to figure out what exactly is the difference between crowdfunding and a REIT.
Sure Dividend offers a comprehensive explanation, but the main difference is that when you invest in a REIT, you're investing in a company that owns real estate. In crowdfunding, you and a pool of other like-minded people invest directly in the properties of your choice. Essentially, you cherry-pick the ones you like and ditch the ones you don't. Either way, you're not involved in the day-to-day management-and you still get your dividend check in the mail.
4. Lend a lump sum.
Hard money loans are a great way for someone with extra cash to make a hefty profit without owning a single piece of property. Essentially, you can lend to a borrower who doesn't want a traditional mortgage loan. For example, a person who plans to buy a property in cash to flip a house isn't always able to access a bank loan quickly. So, they search for someone willing to lend a lump sum of cash and pay a premium for it.
If the loan falls through, instead of repossessing the investors' car or garnishing their wages, the loan is secured by that investment property. If things go downhill, well, that property is yours. But since seizing the property isn't your end game, there are many ways to identify a seasoned investor with a great track record of delivering on their projects and getting their investors serious returns. Many loans have high interest rates and fast repayment periods that both parties find mutually beneficial. It is common to see 10-15% returns in just a year or two. And if you find the right borrower, this relationship could be long and lucrative.
5. Become a wholesaler.
Wholesaling is simply being the middleman in a real estate transaction. In such situations, a person who is behind on their mortgage or tax payments might be willing to sell their house below market value to avoid foreclosure. People in this situation are often experiencing many other challenges, so the idea of selling their house to unravel their finances might not be top of mind. Also, their home might need repairs that they can't afford and wouldn't pass inspection otherwise, making it hard for them to list their place on the traditional market.
If you can help that person find a buyer who likes the house and is willing to take it in its current condition, there could be money in it for you. Matching the right seller with the right buyer can easily generate $10,000-$20,000 for every deal closed. The drawback is that it can take time to figure out how to find deals. For that, there are mentors and courses to overcome the steep learning curve. The upside is that most wholesalers work virtually from their own home, which means they never even set foot in the properties that are bankrolling their financial future.