The more you learn about real estate, the more you realize there are more ways to invest in real estate than just buying a house or two in the neighborhood and turning them into rental properties. Indeed, there are many alternative real estate investments out there.
You might wonder why there are so many options - or which one is best. The reality is that there is not one single answer. Each type of investment has its own risk/reward profile.
That being said, all of these are mostly hands-off investments. That means they won’t require much ongoing work.
Whether you're new real estate investor or you've been investing in real estate for a while, you can always find new opportunities.
So if flipping houses isn’t your jam, one of the alternative investments may work better for you.
Become a Landlord
Becoming a landlord is probably one of the oldest, and still, the best ways to invest in real estate. Being a landlord allows you to set your own terms and have just about as much control as possible.
Other than building codes and laws, this type of real estate investing allows you to do virtually whatever you choose. Plus, given the right market, you'll have the best profit potential since you aren't paying anyone but yourself.
That is not to say that being a landlord is not without its drawbacks.
For example, it may prove to be the most labor-intensive form of real estate investment. If anything goes wrong with the property, it's your responsibility to fix it - or hire someone to do so. But hiring someone cuts into your profits, so you have to decide whether that is worth it.
Plus, if one of your tenants is no longer able to pay their rent or is otherwise problematic, that is your problem to address.
Still, the profit potential that comes with being your own landlord means it remains one of the best forms of real estate investment.
A ground lease is exactly what it sounds like. With a ground lease, you own a piece of land and lease it to tenants. Those tenants will typically develop the land in some way, perhaps by building retail space.
Tenants own anything they choose to build on the land, but they must pay rent to the landowner as part of the ground lease. Plus, if the lease is a net lease, tenants must cover other items, such as property taxes and insurance.
Ground leases can be used to avoid capital gains tax as well.
As you can see, these leases can be a great way to generate income with little to no ongoing work necessary. There are even some real estate investment trusts (REITs) that allow you to invest in ground leases.
A bridge loan is a loan that quite literally bridges a gap in financing. Specifically, these loans are issued in the interim before a buyer secures long-term financing.
One common scenario for taking on such a loan is a buyer wanting to buy a new home before the sale of their current home.
Although this is not strictly speaking a real estate investment, that is where these loans are typically used. They are short-term, high-interest loans, making them a potentially attractive investment.
Real Estate Investments Trusts
A real estate investment trust is a company that owns real estate properties. These are usually properties too large and costly for the average investor to purchase on their own.
As a result, a REIT allows individual investors to buy shares in the company. In turn, the company pays out profits earned on the properties in the form of dividends.
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REITs are attractive to many investors because they are highly liquid, making it easy to liquidate their stake in the trust if needed. In addition, REITs are required to pay at least 90 percent of the profits in the form of dividends, meaning will likely earn a profit as well.
Real Estate Investment Marketplaces
Real estate investment marketplaces allow you to own rental properties much like your typical landlord. However, the companies running these marketplaces often do most of the heavy lifting for you.
For example, Roofstock lists rental properties for sale. On this platform, the properties are already occupied. In addition, they’ll help you find a property manager, financing, and insurance.
The only thing needed from you is the money to purchase the property. As mentioned, financing is an option, but you will likely still have to put money down.
Overall, this is an attractive option if you want to own your own properties without all of the work typically involved.
Real Estate Limited Partnership (RELP)
A real estate limited partnership bears some similarities to other alternative investments on this list; namely, it is comparable to real estate crowdfunding and REITs.
RELPs usually consist of multiple investors who combine their investments. That money then goes toward leasing, development, or purchasing.
Also similar to REITs, a property manager handles maintaining the properties. Investors are generally hands-off and not involved in managing the properties.
Other than not having to manage the properties yourself, the other benefit of RELPs is they can have high returns. That said, they have a relatively high risk to match.
People don’t always think of mobile homes as being a good investment, but they can be one of the best ways to invest in real estate. While buying individual homes is an option, it’s also possible to buy an entire mobile home park.
There are major benefits to this type of real estate investing. One of the biggest benefits is that you don’t own any of the homes themselves. You only have to keep the grounds clean, keep utilities running, and a few other responsibilities.
Plus, mobile home tenants rarely move, making it easier to keep homes occupied.
Of course, buying an entire mobile home park won’t be cheap. However, financing is always an option. And you can even buy shares of mobile home parks in the form of REITs.
Despite the struggles of WeWork, co-working offices are very much alive.
A few weeks ago, as I was walking down the street of a small-town downtown in my area, I noticed a co-working office smack-dab in the middle of downtown.
These office spaces make a lot of sense from a customer perspective. Companies that want a physical space to meet and work, but don’t want to lease an entire office building, can instead rent a co-working space.
And the COVID-19 pandemic has only made co-working spaces more sensible. The pandemic caused many people to work remotely and forced many companies to re-think office spaces.
In fact, some large, well-known companies, such as Siemens and Infosys, have decided to let employees work from home permanently.
But not all employers are taking such drastic steps. Some are allowing employees to work from home with an end date. Others may adopt a more hybrid solution.
The latter could likely benefit from co-working spaces. If these companies are functioning at a high level, even without a permanent office, they may decide it’s not worth it to lease an entire office building.
And that is where you come in as the investor. Investing in this growing trend is likely to pay off. Some REITs that include coworking spaces are:
- Boston Properties BXP
- Alexandria Real Estate Equities
- Hudson Pacific Properties
- Cousins Properties
- SL Green Realty
Ready to Invest in Real Estate?
There is no shortage of ways to invest in real estate. If you aren’t exactly bullish on the stock market - or just want to diversify your investments - real estate is a great option.
Plus, real estate can provide some cash flow while you are still working. Retirement accounts generally shouldn’t be tapped before retirement, after all.
These are just a few of the reasons to invest in real estate. Have you tried one of these alternative real estate investment options? If so, let us know your experience.