Investing in real estate has long been a valuable way to add diversity and income-generating assets to your investment portfolio. Today, it’s never been easier to invest in real estate opportunities without the hassle of buying and maintaining properties, worrying about tenant-landlord laws or paying for the continuing expenses associated with property upkeep.
Online real estate investments provide you with a more passive way to invest in the real estate market without the expenses that come along with property choice and maintenance.
Take a look at 2 major investing strategies you can use to invest in real estate without purchasing individual properties and review platforms that make it simple to add real estate to your investment portfolio.
- Best ForAccredited Investors
Must be accredited investing a minimum of $25,000.
Real Estate Crowdfunding Online
One viable method for investing in real estate without owning an individual property is by investing through a real estate crowdfunding platform. Online real estate crowdfunding platforms (like Yieldstreet or DiversyFund) identify real estate opportunities that experts believe have the potential for growth. From there, the platform allows investors to pool their money together to fund the development or purchase of the property. When the investment matures, investors receive payouts proportional to their initial amount invested.
In many cases, the company that owns the platform will pre-fund the investment, meaning that there isn’t a chance that investors will need to wait years for the investment to be fully actualized.
Most platforms provide investors with projected returns even before the opportunity is funded. This gives you a better understanding of how long your investment will remain illiquid, as you cannot take profits until the investment matures in most circumstances.
The downside to this method of investing is that most platforms are only open to accredited investors. To qualify as an individual accredited investor, you must meet at least 1 of the following criteria:
- Earn an annual income of at least $200,000 as an individual or $300,000 when combined with a spouse for the previous 2 years and expect to continue meeting this earning level.
- Have a net worth equal to $1 million (either alone or together with a spouse) excluding the value of your primary residence.
Banks, family offices and other financial institutions may also act as accredited investors, assuming that they meet asset management and value standards.
Real estate crowdfunding sites will typically require that you submit proof of your net worth or income to verify your status as an accredited investor before you’re able to use the platform. If you don’t currently meet the requirements to qualify as an accredited investor, you might want to consider investing in real estate investment trusts (REITs) instead.
Best Real Estate Crowdfunding Platforms
Are you ready to start exploring the best real estate crowdfunding opportunities? Crowdfunding sites are available for both accredited and nonaccredited investors. Browse a few of our favorite crowdfunding sources below.
- Best ForAccredited Investors
Must be accredited investing a minimum of $25,000.
Groundfloor is a unique financial product for individual investors that allows non-accredited and accredited investors to participate directly in real estate investment loans on a fractional basis. The platform opens the door to short-term, high-yield returns backed by real estate. Typical loans have returned 10 percent annually on a 6- to 12-month term.
The product is based on venture loans to real estate entrepreneurs that are originated and serviced by Groundfloor. Prior to offering, every loan is pre-funded by Groundfloor after a thorough vetting of the borrower's experience, credit worthiness and business plan. An assessment of the property value on an as-is and as-improved basis is also required.
Founded in 2013, Groundfloor is headquartered in Atlanta, Georgia.
RealtyMogul's unique online platform enables investors to handle the entire commercial real estate investing process right from their RealtyMogul dashboard. With rigorously vetted property listings, expertly managed REITs, and a commitment to providing top-notch service and support to its members, RealtyMogul makes commercial real estate accessible to everyday investors.
RealtyMogul is online property investment platform that streamlines the commercial real estate investing process and provides investors with a wide range of opportunities and products to grow their portfolio. The innovative online platform is the first of its kind to make commercial real estate investing more accessible to regular investors.
With a thorough due diligence process, a full range of investing products and services, and user-friendly platform make RealtyMogul one of the most unique fintech solutions on the market.
A REIT is a company that owns or finances real estate opportunities that generate income for investors. Most REITs operate in a very straightforward manner. First, the REIT identifies a property that it believes has the potential to produce income. The REIT will then purchase the property and repeat the process, creating a portfolio of properties that it funds and maintains. The REIT then finds tenants for the commercial or residential spaces that it operates and rents them out, producing income.
You can invest in a REIT by purchasing shares of a REIT’s stock. As a stockholder, you’re entitled to a percentage of the income that the REIT’s properties produce in the form of dividends. A dividend is a small portion of a company’s profits that you gain on a quarterly, monthly or annual basis.
The amount of money you’ll receive per payment period will vary depending on how many shares of stock you own. For example, if REIT X offers $.50 in dividends per share per year and you own 1,000 shares of stock, you’ll receive $500 when the company’s dividend payment date arrives.
REITs are unique because, unlike other types of companies, they are required to pay out dividends to shareholders. To maintain special tax advantages, a REIT must pay out at least 90% of its taxable income to shareholders in the form of dividends. Most REITs aim to pay out 100% of its taxable income in dividends. This rule means that REITs can be a very valuable stream of passive income.
Investing in a REIT is almost identical to purchasing standard shares of stock. Each share of stock will change in value on a daily and even hourly basis. You’ll place an order through your broker, who will fill the purchase on your behalf.
Many brokers allow you to make your 1st investment with as little as $1 by purchasing fractional shares of stocks. This makes them a much more accessible investment on average when compared with real estate crowdfunding platforms.
Best Online REIT Brokers
Investing in a REIT begins by opening a brokerage account. If you already have a brokerage account, you can use your current account to begin buying and selling shares of REITs. Don’t already have a brokerage account? Consider a few of our top choices below.
How to Make Money with Online Real Estate Investing
Investing in real estate begins by identifying solid opportunities. Let’s take a look at a few of the factors you’ll want to look for and consider when you compare real estate opportunities.
- Look for industries expected to grow. No matter if you’re comparing REITs or opportunities offered on a real estate investing platform, consider the industry the real estate is found within. Some sectors are expected to grow in demand within the next few years. For example, demand for healthcare services is expected to rise as the baby boomers age into their golden years. Conversely, the retail sector has been declining for years, and shoppers turn to online retailers. Think about the industry each real estate opportunity is in before you invest.
- Focus on transparency. If you decide to invest through a real estate crowdfunding platform, make careful notes on each offering’s transparency. The company making the offering should make it clear what percentage of the investment is funded, when you can expect returns, why the company has chosen this particular investment and more. Be wary of any company that makes it difficult or inconvenient for you to do your due diligence on its offerings.
- Be careful of dividend yield. Making careful note of each REIT’s dividend yield is also very important when assessing offerings. A company’s dividend yield is equal to the total amount of money it offers in dividends per year divided by its current share price. Say Company X has a share price of $20 and it distributes $1 in dividends each year per share of stock issued — it has a dividend yield of 5%. Though REITs can be a big draw for dividend investors, be wary of companies with a dividend yield equal to 15% or higher. These are considered to be riskier investments.
Getting Started in Online Real Estate Investing
Getting started with real estate investing on a real estate crowdfunding platform begins by assessing your income and current net worth. If you qualify as an accredited investor, you’ll have a much wider selection of potential investments on these platforms, which often hand-select investment opportunities based on potential for return and merit. Consider a few of our favorite real estate crowdfunding sites above to begin exploring options. Note that many of these platforms require minimum investments of $1,000 or more.
If you don’t have thousands of dollars to put down or you don’t yet qualify as an accredited investor, you might want to consider starting your investing journey with REITs. Many brokerage platforms now allow you to invest in fractional shares of stock, which means that you can begin investing with as little as $1. To begin exploring investment opportunities, check out Nareit’s REIT Company Directory here.
Adding Diversity to Your Portfolio With Real Estate
Real estate investments can add a unique layer of diversity to any investment portfolio. However, it’s important to remember that real estate investments can be volatile. No matter how you decide to invest, use real estate investment to complement a robust portfolio made up primarily of more stable investments — like S&P 500 index funds, total market index funds and bonds.
Related content: HOW TO LEVERAGE REAL ESTATE
Accelerate Your Wealth
Arrived Homes allows retail investors to buy shares of individual rental properties for as little as $100. Arrived Homes acquires properties in some of the fastest-growing rental markets in the country, then sells shares to individual investors who simply collect passive income while waiting for the property to appreciate in value over 5 to 7 years. When the time is right, Arrived Homes sells the property so investors can cash in on the equity they've gained over time. Offerings are available to non-accredited investors. Sign up for an account on Arrived Homes to browse available properties and add real estate to your portfolio today.