Indirect Real Estate Investing: 6 Ways to Get Started
November 10, 2022
Investing in real estate can be a great way to secure your financial future, but direct property investments may not be the right choice for you. Maybe you don't want to deal with the hassle of being a landlord, or you're not interested in learning about mortgages and loans.
Indirect real estate investing is a great way to start your investment journey without all the direct investing headaches. In this blog post, we’ll discuss 6 different ways you can invest in real estate and never need to set foot on a property!
Common Drawbacks of Directly Investing in Real Estate
You've probably heard that real estate is a great way to build wealth. And it's true—but only if you do it the right way. There are a lot of people who have lost a lot of money through direct real estate investments. Here are a few reasons why you might not want to invest in real estate directly.
You Could Get Stuck with a Bad Property
If you're not careful, you could end up buying a property that needs lots of work—more work than you bargained for. Before you know it, you're dealing with expensive repairs, code violations, and angry tenants. And all of that can take a big bite out of your profits.
Direct real estate investing is a full-time job. If you're already working a full-time job, do you really want to add another to your plate? Unless you have a team of people working for you, it's going to be tough to keep up with everything that needs to be done.
You Could Get Sued
If something goes wrong at one of your real estate properties—whether it’s an accident or someone gets hurt—you could get sued. And if you don't have enough insurance, you could lose everything you've invested.
It's Not as Passive as You Think
People often think of real estate investing as a passive form of income, but that's not always the case. If you're managing your properties yourself, there's nothing passive about it. You'll be dealing with repairs, leases, and tenants regularly.
Real estate is notoriously unpredictable. Just when you think you've found the perfect investment property, the market could take a turn for the worse and leave you stuck with a big loss.
6 Ways to Get Started with Indirect Real Estate Investing
With indirect investments, you can still potentially reap the benefits of investing in real estate without the hassle of investing directly. Indirect investing minimizes your risk exposure and lets you make an income without being actively involved in managing the property itself.
Getting started can be as simple as buying a few shares from a real estate investment company, putting money into a crowdfund, or investing in first-position real estate mortgage liens with Concreit.
1. Invest in Mortgages
If you lend money to a borrower so they can purchase real estate, you become a mortgagee, and the borrower is the mortgagor. You’re investing in the mortgage backed by the real estate property. You earn a return from the interest and fees that the borrowers pay on their mortgages.
One of the best ways to invest in real estate mortgages is with Concreit. This platform allows investors to participate in fixed-income first-lien mortgages through SEC-qualified Regulation A+ Tier 2 offerings. The minimum investment with Concreit is just $1, although account maintenance fees apply until you invest $5,000.
Concreit invests in hundreds of high-yield, income-focused first-lien mortgages across the United States, which helps to minimize your risk. This cash flow strategy has been used by hedge funds and private equity funds for wealthy investors. In addition, tens of thousands of clients have made over 100,000 investments on the platform.
Real estate debt provides a steadier source of income than equity investments, with the potential for weekly payouts. Additionally, real estate debt can act as a buffer against inflation, protecting your investment over time. This short YouTube video explains how to create an auto-investment schedule with Concreit directly from the app on your smartphone.
First-position real estate debt is a good option if you want to invest in real estate but avoid the potential problems of owning property. To start investing with Concreit, click the button below.
2. Real Estate Investment Trusts (REITs)
A REIT is a company that owns or finances a real estate property that generates income. Much like a stock, you can purchase a REIT on an exchange-traded fund (ETF). There are several requirements for a company to qualify as a REIT, such as
- A minimum of 100 shareholders.
- Having 75% of total assets invested in real estate.
- Being an entity that is taxable as a corporation.
- Distributing at least 90% of its taxable income to shareholders annually as dividends.
- Being managed by a board of directors or trustees.
3. Real Estate Investment Groups (REIGs)
Real estate investment groups are another way to invest indirectly. These groups focus primarily on gaining profits by purchasing, selling, financing, or renovating properties. More often than not, REIGs will buy multi-unit complexes, such as apartment and office buildings, then sell the units to other investors. However, the responsibility for things like repairs and upkeep still falls on the real estate investment group. They’re also in charge of administrative duties.
Typically, an REIG lease will be in the investor’s name, but all the units will set aside a portion of the rent as protection against vacant units. So even if your unit is vacant, you can still generate some income unless the vacancy rate for all the units combined is too high.
Crowdfunding is perfect for those looking to invest in properties across the country. It allows the public to (virtually) fund a real estate venture by pooling together small amounts of money. These small sums of money can add up to a substantial amount, enabling investors to afford properties they might not be able to otherwise.
Some lenders let investors browse specific deals and choose the ones they want to fund. Depending on which crowdfunding site you choose, you can invest as little as $100. However, your crowdfunding options may be more limited if you’re not an accredited investor.
There are a few requirements when it comes to crowdfunding, according to the SEC:
- All transactions must take place online via an SEC-registered broker-dealer or funding portal.
- The maximum amount a company can raise within 12 months is $5 million.
- Disclosure is necessary for information in filings with the Commission, investors, and the intermediary assisting the transaction.
5. MBS and CMBS
Mortgage-backed securities (MBS) and commercial mortgage-backed securities (CMBS) are financial instruments created when a pool of mortgages is bundled together and sold as a single investment. These types of securities offer investors the potential for higher returns than traditional fixed-income investments, but they also carry increased risk.
One downside to MBS and CMBS is that they lack transparency, and accurately determining the underlying mortgages’ value can be difficult. In contrast, investing in first-lien mortgages offers more visibility into the underlying property and its potential for appreciation. In addition, first-lien mortgages may have lower default rates than MBS and CMBS, making them a potentially safer investment option.
6. Hard Money Loans
Hard money lending involves loaning funds to a borrower to finance real estate investments. These loans are typically short-term, with repayment periods ranging from 6 months to 1 year.
One potential advantage of hard money lending is the potential for high returns. Borrowers often seek these loans because they can’t secure traditional financing, and as a result, may be willing to accept higher interest rates in exchange for access to funds.
However, significant risk is involved, as borrowers may default on their loans or fail to turn a profit on their investment property. Due diligence is key when deciding to make a hard money loan. You’ll need to carefully assess the borrower's experience and track record and thoroughly understand the details of their proposed investment project before committing any funds.
Things to Consider When Indirectly Investing in Real Estate
There are several important factors to consider with indirect real estate investing. First and foremost, you should thoroughly research and understand the asset you’ll potentially be investing in, whether it be a REIT or a real estate fund.
You also want to pay attention to the management team overseeing the investment, as their experience and past performance can significantly impact its success. Additionally, you should scout out current market conditions and any potential future trends that could impact profitability. And focus on diversification, as spreading investments across multiple assets can help mitigate risk.
A great place to get started with indirect property investing is first-position real estate mortgages with Concreit. By providing loan capital to property owners, you could see a steady stream of interest income while also possibly benefiting from properties being sold or refinanced at a profit.
Furthermore, Concreit's expert underwriting and due diligence processes ensure that your funds are invested in high-quality loans with the potential for strong returns.
If you're interested in investing in real estate debt while minimizing volatility, visit Concreit to learn more about fixed-income first-position real estate mortgage liens.
This information is educational, and is not an offer to sell or a solicitation of an offer to buy any security which can only be made through official documents such as a private placement memorandum or a prospectus. This information is not a recommendation to buy, hold, or sell an investment or financial product, or take any action. This information is neither individualized nor a research report, and must not serve as the basis for any investment decision. All investments involve risk, including the possible loss of capital. Past performance does not guarantee future results or returns. Neither Concreit nor any of its affiliates provides tax advice or investment recommendations and do not represent in any manner that the outcomes described herein or on the Site will result in any particular investment or tax consequence.Before making decisions with legal, tax, or accounting effects, you should consult appropriate professionals. Information is from sources deemed reliable on the date of publication, but Concreit does not guarantee its accuracy.