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Top 5 ways to invest in real estate without buying a property

Sebencapital

Published
02/10/23
Property Investment: How To Invest In Real Estate In India For Beginners?

Investing in real estate is often linked to substantial capital investments. However, not having a large sum of money doesn't mean you can't participate in this sector. The real estate industry has seen new trends and options, allowing various ways to invest in real estate without necessarily buying physical properties.

Top 5 ways to invest in real estate

Many individuals seek guidance on investing in real estate, but real estate investments don't always involve owning physical properties. Various opportunities enable investors to benefit from real estate appreciation without the ongoing responsibilities of property maintenance. Investors who opt for non-traditional real estate investments have the flexibility to invest in different locations, property sizes, and real estate asset classes. While these steps can be a pathway to potential property ownership in the future, the returns from these real estate investments might be attractive enough to avoid buying a property altogether.

Where can you invest without buying a property?

Real Estate Investment Trusts (REITs)

Real Estate Investment Trusts (REITs) are specialized companies that make debt and equity investments in commercial real estate. Introduced in 1960 to allow investors to invest in real estate as an asset class, REITs are known to offer a minimum of 7-8 percent annual returns to small and mid-level investors. Like a mutual fund, REIT investors hold shares of REITs and earn returns in the form of dividends, depending on the performance of the REIT investments.

Those interested in investing in REITs should choose companies with a favorable track record and a high dividend yield. Additionally, it's best to research and invest with companies with significant field experience.

Parth Mehta, Managing Director at Paradigm Realty, said, "REITs will likely be a game-changer for the Indian real estate industry. They allow sponsors to invest in assets through trusts and enable investors to become owners of various properties, even if they cannot buy the asset outright. According to REIT guidelines, at least 80 percent of the value must be invested in revenue-generating assets, while the remaining can be invested in under-construction projects. REITs are primarily preferred by those seeking higher income and long-term growth."

Real estate wholesaling

Real estate wholesaling allows individuals to enter the industry without a substantial upfront investment. It involves a form of property flipping where the investor, referred to as the wholesaler, agrees to purchase a property they believe is undervalued. The property is then sold to the end user at a profit. This process allows beginners to gain insight into the real estate market and develop negotiation skills. The wholesaler earns a fee, typically a percentage of the total property cost attached to the transaction.

For this process to be successful, it requires a well-thought-out strategy. The investor must understand market trends, have a list of potential buyers, and thoroughly assess the property's condition. This type of real estate investment can often start in one's local area, where the investor is likely familiar with the area and can build trust more quickly.

Real estate mutual funds

Real estate mutual funds Investing is a beneficial way to diversify your investment portfolio. This concept resembles a mutual fund, where the investor owns a share of the fund, and the company owns the investments it makes. The earnings come in the form of dividends or an increase in the fund's share value. Real estate mutual funds mostly invest in real estate investment trusts (REITs) and real estate stocks and directly purchase residential, commercial, and industrial properties. This option is particularly favorable for small investors who prefer not to deal with real estate directly. It's important to note that the earnings from real estate mutual funds depend on various factors, including supply and demand, market conditions, and interest rates.

"Real estate mutual funds are a good investment choice for potential investors who want to benefit from real estate market appreciation but may not have enough funds to buy property, especially in cities like Mumbai and Delhi where property prices are very high," explains Amit Desai, Owner of Propinvest Realty.

When considering real estate mutual funds, investors should assess the risk of interest rate fluctuations due to market conditions. Evaluating your financial situation and investing without straining your savings too much is essential.

Online investment platforms

Online real estate investment platforms offer a way for many investors to pool their funds and invest in opportunities that might be too expensive to pursue individually. These platforms vary in terms of investment options, types of properties, and minimum investment requirements. They typically cover residential and commercial real estate, allowing investors to invest in a single property or a diversified portfolio of real estate assets. However, this method is best suited for investors who can commit to their investments over a longer period without interruption.

Experts recommend that investors set up trading, demat, and online trading accounts for these investments. While following a broker's advice may seem wise, conducting your research is also important. The goal is to sustain your investment over time and not deplete your funds too quickly.

Hard money loans

A hard money loan is a short-term loan typically offered by an individual to a real estate investor. These loans, sometimes called bridge loans, are used to finance investment projects. The loan amount is determined based on the property's value as collateral. Usually, hard money lenders provide credit for up to 65-75 percent of the property's value, and they earn money through higher interest rates than traditional property loans.

How to invest in real estate in India?

To start real estate investment in India, you must understand that you can invest in real estate with or without buying physical property. Here are the steps to follow:

  • Determine the Type of Return: Decide whether you are looking for a long-term or short-term return. Real estate investments often take time to yield profits, so having a realistic outlook is crucial.
  • Consult a Financial Advisor: Seek advice from a financial advisor who can assess your financial portfolio and provide guidance on how to build it further.
  • Choose Investment Method: Decide whether to invest by buying a property or explore other real estate avenues like Real Estate Investment Trusts (REITs), fractional ownership, or mutual bonds.
  • Set Investment Tenure: Determine the duration and frequency of your investments. You can make a lump full payment or invest at regular intervals, such as monthly or annually.
  • Track Investments: Keep a record of your investments and monitor the returns you receive over time. Compare the returns with the time it takes to achieve them to assess the profitability of your investment.
  • Consider Rental Income: You can generate rental income if you own a secondary property. However, consulting with real estate and legal experts is advisable, especially if you are new to real estate investment.

Following these steps will help you make knowledgeable decisions and navigate the world of real estate investment in India.

FAQs

1. Is it safe to invest in real estate without property ownership?

Like any other investment, real estate investments also have potential risks. It's advisable to seek professional assistance before starting any investment.

2. How can beginners invest in real estate?

Beginners can start their real estate investment journey by investing in rental properties, small plots of land, or by flipping houses.

3. Is real estate a liquid investment?

No, real estate is considered a non-liquid asset because it takes longer to convert it into cash through its sale.

Written by Sauravsingh

Techpreneur and adept trader, Sauravsingh Tomar seamlessly blends the worlds of technology and finance. With rich experience in Forex and Stock markets, he's not only a trading maven but also a pioneer in innovative digital solutions. Beyond charts and code, Sauravsingh is a passionate mentor, guiding many towards financial and technological success. In his downtime, he's often found exploring new places or immersed in a compelling read.

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