fbpx

6 Types of Real Estate Investment Strategies

Benzinga Money is a reader-supported publication. We may earn a commission when you click on links in this article.
Learn more.
Contributor, Benzinga

Want to jump straight to the best? Diversyfund is definitely the best real estate investing platform for most people.

With record-low interest rates and home prices set to drop from June highs, we are in a unique opportunity for real estate opportunists in the COVID era. But buyers are swooping in just as quickly as houses become available. Forward inventory for June is at 1.5 months rather than the normal 6. It remains to be seen if developers can keep up with demand as they deal with social distancing.

Do not make the mistake of thinking that you need cash to participate in this market. If you come in loaded, you are definitely at an advantage. But new technologies, processes and legislation give you the ability to leverage your cash in ways that were not possible before. Here are 6 ways that you can put yourself into real estate regardless of your financial, temporal or educational limitations.

Strategy 1: REITs

One of the first strategies in any real estate investing for beginners course should be about the real estate investment trust (REIT). A REIT is one or more companies specializing in real estate that produce income, like apartment buildings or commercial skyscrapers.

You do not need the money to buy a skyscraper to invest in one. You don’t even need a down payment. Investing in the appropriate REIT pools your money with that of other investors to collectively finance the building. You may already invest in a REIT indirectly through your 401(k). REITs own more than $3 trillion in assets spread through 500,000+ properties in the U.S.

You may also invest in publicly-traded REITs through the stock market. Two of the biggest are American Tower (NYSE: AMT) and Simon Property Group (NYSE: SPG). Returns average around 11% per annum.

Strategy 2: Passive Real Estate Investing

Passive real estate investment is attractive to many people who want the returns of real estate without the responsibility of being a landlord. If you have cash or you are moving out of a property, you can use it to profit from consistent rent payments from a tenant. New technology allows you to do this from a distance — you can hire a professional property manager to handle the day-to-day operations.

Investing passively allows you to increase your net worth and use your properties for other purposes. If your property manager keeps your units filled, you can often offset many ownership costs through rent. You can do all of this without the need to study the ins and outs of being a landlord, which can be a full-time vocation. Most experts think that you can get a 8% rate of return per annum on a rental property. This does not include any appreciation you may enjoy during your ownership tenure.

Strategy 3: Commercial Real Estate

Commercial real estate is facing headwinds as companies work around the social distancing orders and suggestions of their municipalities. Some experts believe that companies will continue the practice of telecommuting. There is certainly some viability to that theory — occupying an office space exposes a company to a number of costs and liabilities that can get very expensive very quickly.

The retailers you hear about going bankrupt — JCPenney, Brooks Brothers, True Religion, Pier 1 — all have something in common. They were already big companies with the inability to be agile. Upstart retailers who are coming in at the bottom still need space. Production facilities still require people in proximity to each other, and people are eventually going to crave professional company. If you are buying at the bottom, you will still have plenty of tenants to choose from once the pandemic ends. You don’t have to push the insane numbers of a GNC to be profitable, and that’s your advantage.

Strategy 4: Buy and Hold Investment Properties

The buy and hold strategy works in real estate as well as in stocks. Many experts believe that early investing in real estate should be long-term investment properties. Investors who try to time the market and flip properties with no experience usually find themselves taking losses. It is usually much better to build a portfolio with a few core properties, learn how to collect rent and grow your other investments from these core holdings.

Buy and hold properties also give investors a chance to benefit from the effect of time on real estate value. Compounding capital gains over time beats any short-term return. You also learn how to take care of a property, work with contractors and maybe even repair a leaky faucet.

Strategy 5: Active Real Estate Investing

Many experts believe that you should get started in real estate investing through a buy and hold property, but fix and flips can be a great move for energetic investors with some experience building up a home. These active investments are quickly bought, upgraded to a certain level and sold for a profit. If you don’t go in thinking to get rich quickly, you can make quite a living creating homes for people who want move-in ready property.

You need to be a top-flight deal hunter to do well in the active market. From the initial buy to the last paint job, you will be negotiating a discount. Every penny you pay out means a penny off of your potential profits. You will also need a good team around you — an appraiser, inspector and contractor — and they don’t come cheap. 

Getting started in this market can be difficult. Banks lend to people with experience, and you may not have any experience to begin. Make sure your credit is excellent and you have the down payment for a traditional loan with money for closing costs and upgrades.

Strategy 6: Crowdfunding

If you have a few thousand dollars and an itch to invest in real estate, crowdfunding may be a good choice for you. Like a REIT, the crowdfund pools investor money together, often from smaller contributions. Your startup costs are low and you don’t have to worry about optimizing your credit score or borrowing tons of money to get involved.

Crowdfunds are not subject to the same stringent regulations as REITs. They give everyone access to the market, but due diligence is required. Because you’ll be working with many other investors without expertise in real estate, you must be sure not to follow the herd when you invest. The good news is that investing properly gets you the same type of profit — around 10% per annum on your money — as the other real estate investment strategies mentioned here.

Best Real Estate Crowdfunding Platforms

If you want to invest passively combining your money with other investors, crowdfunding is a relatively new but powerful tool. Look through the crowdfunding platforms here to begin your search.

Get started securely through EquityMultiple’s website
Minimum Investment
$10,000
Fees
0.5% – 1.5%
1 Minute Review

EquityMultiple makes real estate investing simple, accessible and transparent.

Best For
Pros
Cons
Get started securely through CrowdStreet’s website
Minimum Investment
$25,000
Fees
1% – 1.75%
1 Minute Review

CrowdStreet is a commercial real estate investing platform where people can invest directly in commercial projects. Unlike a brokerage firm, CrowdStreet isn’t a middleman. Instead, the platform acts as a marketplace where investors can pick and choose the best deals for their time horizon and strategy.

Available investments range from family living spaces to office buildings to storage facilities and investors can sign up for a free membership. Your investment options are limited to what’s live on the Marketplace and you’ll need capital to build a diverse real estate portfolio. Only accredited investors can access deals through CrowdStreet.

Best For
  • Investors looking for diversification away from stocks
  • Real estate investors interested in new opportunities
  • Accredited investors with lots of capital at their disposal
Pros
  • Unique opportunities available
  • Makes real estate accessible and understandable
  • Investors can devote capital to both debt and equity offerings
  • Offers quality education materials and answers to FAQs
Cons
  • Real estate is highly illiquid
  • Most properties require a minimum $25,000 investment
  • You’re limited to what’s on the CrowdStreet Marketplace
Get started securely through stREITwise’s website
Minimum Investment
$5,000
Fees
2% – 3%
1 Minute Review

Looking to diversify your portfolio and get into real estate? A real estate investment trust (REIT) that owns income-producing real estate may be a great place for you to start. Streitwise is a REIT that specializes solely in commercial real estate and has a low entry investment requirement of $5,000. Based in Los Angeles, Streitwise was created in 2017 by three veteran real estate investors who were frustrated that there wasn’t a good option for unaccredited investors to get into the commercial real estate market.

Streitwise focuses on investing in low-risk rental commercial real estate aimed at providing clients with consistent high-yield returns. The team invests in markets that are steadily growing and offer low-risk potential outcomes. While they’re still young and growing, the founders have built their business based on solid experience coupled with a vision for the future of investing. If you’re looking to diversify your current investment portfolio but feared real estate was too lofty a goal, Streitwise is worth exploring.

Best For
  • Investors looking to diversify
  • Investors with less than $200k in annual income
  • Passive traders
Pros
  • Consistent quarterly dividends
  • Low, transparent fees
  • Low investment minimum
  • Convenient and easy to use
Cons
  • Projections are uncertain
  • Limited portfolio
  • Limited technology
Get started securely through Diversyfund’s website
Minimum Investment
$500
Fees
No management fees
1 Minute Review

DiversyFund isn’t your average crowdfunding platform. You’ll find that the company puts a twist on the traditional everyday crowdfunding platform, beyond anything you can find online with a simple Google search. You only have to look under DiversyFund’s skin one layer to surmise that DiversyFund is a conscientious developer and sponsor and helps hedge risk through improved vetting.

DiversyFund offers a multifamily real estate investment trust, the DiversyFund Growth REIT, and its main goals are to increase cash flow and resale value. It’ll automatically give you access to multi-million dollar real estate assets.

Best For
  • Those looking for an alternative investment beyond stocks and bonds
  • Individuals who aren’t sure they want to be landlords in the traditional sense
  • Investors who aren’t accredited
Pros
  • Only need to pony up $500 to get started
  • Open to investors all over the world
  • No expensive broker fees
Cons
  • You’ll only be able to access “blind pool” investments, which means that you can’t opt out of specific properties
  • There’s only one real investment option, the DiversyFund Growth REIT
get started securely through Groundfloor’s website
Minimum Investment
$10
Fees
No investor fees
1 Minute Review

Groundfloor is open to non-accredited investors and private individuals looking for active real estate alternative investment. Groundfloor has great volume with more than 10 investments. 

Individuals with small portfolios will also like the low $10 minimum and 0 investor fees. However, most of the loans are given to house flippers, and there is a risk of borrowers defaulting on their loans. 

Best For
  • Non-accredited investors: It is a good option for non-accredited investors who want to invest in an individual capacity.
  • Private investors with small portfolios: Groundfloor charges a relatively small premium of $10, which private investors with small portfolios find attractive.
  • Active-investors: Groundfloor is also ideal for investors who want to actively maintain and control their real estate portfolio.
Pros
  • Charges the lowest minimums in the industry
  • 0 investor fees
  • Open to non-accredited investors
Cons
  • Offers no bankruptcy protection
  • High rate of an uncured default
  • Many loans are for judicial-only states
Get started securely through Yieldstreet’s website
Minimum Investment
$500
Fees
average 1-2%
1 Minute Review

Yieldstreet is an alternative investment platform that allows you to access unique, diversified and expert-reviewed investments. From real estate offerings to works of art, Yieldstreet offers investments that have low correlations with the general markets, meaning they can act as a new source of portfolio diversity.

Yieldstreet’s platform is easy to initiate and use — open an account in just a few minutes and begin browsing available investments before your account is fully verified. Due diligence information is easy to find and clearly laid out, and most investments include additional resources to learn more about the investment’s industry or category. Although the majority of investments are only open to accredited investors, anyone can invest in Yieldstreet’s Prism Fund.

Best For
  • Passive income generation
  • Accredited investors
  • New investors looking for an intuitive platform
Pros
  • Wide range of expert-reviewed alternative investments
  • Investments that are pre-funded by Yieldstreet
  • Prism Fund open to non-accredited investors
Cons
  • Majority of investments only open to accredited investors
Get started securely through Acre Trader’s website
Minimum Investment
$15k – $25k
Fees
0.75% and 1% per year based on asset value
1 Minute Review

AcreTrader is an investing platform that makes it easy to buy shares of U.S. farmland and earn passive income, starting in just minutes online. The platform features actual parcels of farmland where investors can choose offerings to participate in based on their investment preferences.

Farm types range from Midwest Row Crop Farms to California Almond Orchards, but you don’t need to be an agriculture expert to get started. They have a very thorough underwriting process to vet the offerings, and present information in an easy-to-understand offering page on their website where you can get started with as little as $10k and 10 minutes.

Best For
  • Investors looking for diversification away from stocks and other traditional assets
  • Real estate investors interested in new opportunities
  • Accredited investors with multi-year investment horizons
Pros
  • Real, uncorrelated asset class with a history of consistently strong returns
  • Highly qualified team with best-in-class underwriting practices
  • The platform has some of the lowest fees that you’ll find in real estate investing
Cons
  • Investment minimums are typically $10,000+
  • Only open to accredited investors at this time
Get Started securely through Arrived Homes’s website
Minimum Investment
$100
Fees
1% asset management fee
1 Minute Review

Arrived Homes is the latest player in the real estate investment industry. Differing from many of their counterparts, Arrived provides investment opportunities in the single-family homes, with a minimum investment of just $100.

Best For
Pros
Cons

Best Brokers for REITs

If you want a more traditional type of collective investment, joining a REIT may be for you. Here are a few of the best brokers for REITs.

Get started securely through Webull’s website
Best For
Intermediate Traders and Investors
N/A
1 Minute Review

Webull, founded in 2017, is a mobile app-based brokerage that features commission-free stock and exchange-traded fund (ETF) trading. It’s regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).

Webull offers active traders technical indicators, economic calendars, ratings from research agencies, margin trading and short-selling. Webull’s trading platform is designed for intermediate and experienced traders, although beginning traders can also benefit.

Webull is widely considered one of the best Robinhood alternatives.

Best For
  • Active traders
  • Intermediate traders
  • Advanced traders
Pros
  • Commission-free trading in over 5,000 different stocks and ETFs
  • No account maintenance fees or software platform fees
  • No charges to open and maintain an account
  • Leverage of 4:1 on margin trades made the same day and leverage of 2:1 on trades held overnight
  • Intuitive trading platform with technical and fundamental analysis tools
Cons
  • Does not support trading in mutual funds, bonds or OTC stocks
get started securely through TD Ameritrade’s website
Best For
Options Trading
N/A
1 Minute Review

This publicly listed discount broker, which is in existence for over four decades, is service-intensive, offering intuitive and powerful investment tools. Especially, with equity investing, a flat fee is charged, with the firm claiming that it charges no trade minimum, no data fees, and no platform fees. Though it is pricier than many other discount brokers, what tilts the scales in its favor is its well-rounded service offerings and the quality and value it offers its clients.

Best For
  • Novice investors
  • Retirement savers
  • Day traders
Pros
  • World-class trading platforms
  • Detailed research reports and Education Center
  • Assets ranging from stocks and ETFs to derivatives like futures and options
Cons
  • Thinkorswim can be overwhelming to inexperienced traders
  • Derivatives trading more costly than some competitors
  • Expensive margin rates

Moving into Real Estate

Your job for the next few hours is to research the financial vehicles you have at your disposal to invest in real estate. This is one of the most attractive markets we have seen in a long time, and there is definitely no precedent for it. Even if you don’t make a move immediately, now is the time to start learning.

Accelerate Your Wealth

DiversyFund accelerates your wealth creation by reinvesting cash flows from the properties — the DiversyFund Growth REIT is a public non-traded REIT designed to build wealth by investing in multifamily real estate and intends to build wealth over an approximate 5-year timeline. You don’t have to be an accredited investor to invest in Diversyfund. Open a Diversyfund account today.