Real estate investment may be quite profitable, but it takes a significant amount of capital to get started.
But even without purchasing a physical property, there are other ways to invest in real estate without purchasing property if you don’t have hundreds of thousands of dollars on hand. If you are also looking for a way to invest in real estate without purchasing property this article is just for you.
We have listed 8 best ways to invest in real estate without purchasing property. So let’s dive in!
Steps to invest in real estate without purchasing property in India
Understanding that real estate investment in India can be done with or invest in real estate without purchasing property is crucial to moving forward with the process. Let us look at the steps to keep in mind while investing in real estate in India:
- Start by determining whether you require a long-term or short-term return. Realistic expectations are advised because real estate typically takes some time to produce a profit.
- Consult a financial expert who can advise you based on your financial portfolio and assist you in expanding it.
- Choose between real estate investment through the purchase of a home or alternative real estate investment options, such as REITs, fractional ownership, or real estate mutual bonds, to name a few.
- Fix the real estate investment duration once it has been chosen, whether it be a lump amount payment or an interval-based payment. You can invest on a monthly, annual, bi-annual, or any other schedule that feels appropriate to you basis.
- Keep track of the real estate investments you make and monitor your returns over time. To determine the profitability of an investment, compare the returns with the time required to achieve them.
8 ways to invest in a real estate without purchasing property
Real Estate Investment Trust
Through the use of various financial tools and platforms, one can invest in real estate without actually purchasing any property. REITs are one of the most well-known and well-liked methods.
An investment structure called a real estate investment trust (REIT) enables people to put money into a professionally managed portfolio of assets that generate income from real estate. Office buildings, apartments, shopping malls, and warehouses are just a few of the properties that REITs own and manage. They make money by collecting rent, lease, and mortgage payments.
It supports non-correlation with any other sort of equity and aids in diversifying holdings. Without being a landlord, it also offers the appropriate exposure to the real estate sector. Consumers should always choose publicly traded REITs over non-traded REITs, it is important to ensure this. Liquidity, fees, transparency, risk, and value are a few things to think about while investing in REITs.
Real Estate ETFs
Similar to mutual or index funds, it is a collection of stocks or bonds in a single fund with the benefits of cheaper fees and more diversity. After carefully weighing all the options and after extensive research, there are many ETFs on the market that offer significant exposure to the real estate industry.
ETFs in India contain shares of domestically traded companies that are involved in the real estate sector, such as those that build homes, own commercial property, or operate hotel chains. You can invest in real estate all throughout India by buying an ETF, giving you a larger exposure. Despite carrying greater risks, they are worthwhile because they provide substantial returns. ETFs can be sold when the returns aren’t as advantageous, just like stocks.
Real Estate Crowdfunding
Real estate crowdfunding is a great way to raise money for real estate projects by soliciting small investments from lots of different individuals without having to buy or sell any real estate. It enables investors to pool their funds together to invest in various real estate projects, such as the creation of a new home or the renovation of an existing one.
Let’s say a group of real estate investors decided to build an apartment complex. They have two choices: they may turn to a group of private investors or they can look to a lender like a bank for finance. where they choose the individual investor option, that’s where you enter the picture. Through real estate crowdfunding, a sizable number of people finance a specific project. Along with other investors and real estate firms, you as an investor will either fund or raise money for a real estate project.
There are three forms of crowdfunding available in India: equity-based, lending-based, and donation-based models. The equity-based crowdfunding approach is the most popular one for real estate. As an investor, you’ll either provide funding for a real estate project or work with other investors and real estate firms to raise money for one.
The risks are minimal and the expected returns are significant, up to 20%, especially if the property is in a residential neighborhood in a developing city where there is rapid population development.
Alternative Investment Funds
AIFs essentially invest in start-ups, early-stage venture capital, infrastructure, real estate, and other types of assets. AIFs are privately combined funds that, depending on the class, can either be open-ended or close-ended, according to the SEBI.
AIFs are more profitable than mutual funds, but they also have a higher minimum investment requirement of INR 1 crore, making them best suited for High Net Worth Investors (HNIs).
Flipping a house entails purchasing a home, making any necessary renovations, and then reselling it for a profit. Investors purchase homes at below-market prices or from owners who are in desperate need of money in order to make large profits. The investors begin their search for potential buyers as soon as they take possession of the property by publicizing the property listing.
Knowing the many forms of real estate assets, their prices, and the market explicitly is necessary in this sector. A smart investor is constantly looking for suitable homes to buy and flips different houses without spending any time.
Real Estate Limited Partnership
A real estate limited partnership (LP) is a kind of investment vehicle that enables people to participate in a particular building or group of buildings through a partnership with a developer or business in the real estate industry. A partnership is established to create, own, and oversee a particular real estate project.
In this partnership there are two types of partners: General Partners and Limited Partners. The partnership’s general partners oversee daily operations, decide on investments, and are normally liable for all debts and liabilities. Limited Partners contribute capital to the partnership and receive a portion of the earnings, but they are subject to limited liability and do not participate in its management.
A real estate LP investment can be a useful method for people to get exposure to the real estate market without having to take on landlord obligations.
It is a type of property flipping where the investor, often referred to as the wholesaler, signs a contract to purchase a house they think is being overpriced. After that, the asset is profitably sold to the final user. The procedure aids a novice in developing their negotiating abilities and gaining insight into the real estate market. The charge associated with the transaction, which is often a fixed percentage of the total cost of the property, is how the wholesaler makes money.
According to experts, such a real estate investment can be initiated closer to home because the investor would ideally be familiar with the neighborhood and be able to establish confidence somewhat more quickly.
Online investment platforms
Online platforms for real estate investment gather funds from a large number of individuals and make investments on their behalf in opportunities that would otherwise be extremely difficult to find or extremely expensive to access.
These investment platforms offer a wide range of investment opportunities, property kinds, investment minimums, and investor access. These online investing platforms may concentrate on one particular property or a mix of commercial and residential properties. More frequently still, the investments that the investors make are part of crowdfunding, a method that enables others to purchase real estate without the need for venture financing.
But only those who can afford to leave their investments unattended for a lengthy period of time should use this medium of investment.
Finally, there are a number of ways to invest in real estate without actually purchasing a home and becoming a landlord. Real estate investment trust (REIT) investment, buying exchange-traded funds (ETFs), and other strategies are a few among them.
Before buying commercial property with no money, it’s important to carefully consider these options as well as your credentials and experience. Furthermore, it’s crucial to be aware that these options might only be accessible in certain regions and that it’s best to check with local laws and regulations.
What are some common mistakes to avoid when investing in real estate?
One common mistake is failing to conduct proper due diligence on the property and the local market. It’s also important to not over-leverage yourself financially and to have a solid exit strategy in place.
How can I determine the potential return on investment for a real estate property?
You can calculate the potential return on investment by subtracting the total expenses (such as mortgage payments, property taxes, and maintenance costs) from the expected rental income or sale price. Divide this number by the amount of money you invested to get the return on investment percentage.
What are some tax benefits of real estate investments?
Real estate investors can take advantage of tax deductions for expenses such as mortgage interest, property taxes, and repairs. Additionally, real estate investors can benefit from depreciation deductions, which can offset rental income and reduce taxable income.
Is it better to invest in residential or commercial real estate?
There is no one-size-fits-all answer to this question as it depends on individual investment goals and preferences. Residential real estate may be easier to manage and may have more consistent demand, while commercial real estate may offer higher rental income and longer lease terms.
How can I diversify my real estate investment portfolio?
Diversification can be achieved by investing in different types of properties (such as residential, commercial, and industrial), investing in different locations, and investing in different types of real estate funds (such as REITs and private equity funds). However, it’s important to conduct proper due diligence and research before making any investment decisions.