Investing Without Buying: How to Invest in Real Estate Without Buying Property
Thursday Nov 07th, 2019Share
When people think of investing in real estate, they immediately think of tangible, brick and mortar, property investments. While becoming a property owner and renting out your properties to tenants may be the traditional definition of a real estate investor, there are numerous ways in which truly experienced investors can invest in real estate without actually purchasing property.
After investing so much into property, some investors feel the need to branch out into different investment opportunities without shying too far away from what they know. With the use of the stock market, investors are capable of investing their money within the real estate sector without purchasing property.
Here are five ways in which investors put money into real estate without acquiring property:
- REIT ETFs
- Mutual Funds
- Home Construction
- Real Estate Companies
As the population of Canada continues to grow, more and more properties need to be built to accommodate the population—especially in dense metropolitan areas like Toronto and Vancouver.
Thus, the more properties that need to be built, financed, or bought, the more investment opportunities are offered to investors. These opportunities are not limited to simply buying property; real estate investment trusts allow investors to generate profits without the need to physically acquire property.
Real estate investment trusts (REIT) are companies that are responsible for financing real estate properties across a number of sectors. They rent out properties to collect income that is then distributed among stakeholders. Investing in REITs allows investors to generate income from properties that are not operated by them, but instead are operated by investment trusts.
There are two main types of REITs: equity and mortgage. Equity REITs are the most common in the market. They generate income primarily from tenants of the properties and real estate they own. Mortgage REITs are investment trusts that provide mortgages and loans to property owners. Their income is generated through it’s net interest.
Investing in primarily equity REITs, will offer a higher liquidity and transparency than traditional property investments. The biggest reason why experienced investors view REITs as profitable investments is due to an REIT’s taxable income being used as dividends for shareholders.
Investors are able to purchase shares of publicly traded and non-traded REITs listed and regulated under Canadian stock exchanges like the Toronto Stock Exchange (TSX) and the Canadian Securities Exchange (CSE).
Thus, if you want to make successful real estate investments without risking the amount of money that is typically associated with purchasing a property, REIT investments are a smart investment alternative. Look for prospering REITs to make a successful investment.
Investing in real estate investment trusts that are Exchange-Traded Funds (ETFs) is also a smart alternative to investing in actual real estate. REIT exchange-traded funds are typically low-cost investments. They are also low-risk, but its risk isn’t simply derived from its cost; ETFs help diversify your funds which is crucial to any investor.
REIT ETFs provide investors with the ability to obtain a bundle of real estate-related stocks, bonds, and securities. The use of the stock market allows investors to manage their ETFs easily and efficiently, while receiving transparency from an investment that is usually absent from traditional real estate investments.
Like REIT ETFs, real estate mutual funds are another low-cost investments that real estate investors may use to profit. And also like ETFs, real estate mutual funds provide investors with the diversification that they need in their portfolio. Its low-cost and diversification is what draws investors to mutual funds, though the main differences between mutual funds and ETFs lie within the cost and exchange.
While both are low-cost, ETFs are relatively cheaper. ETFs can also be traded throughout the day, while mutual funds can only be traded at the end of the day. However, investors should not view mutual funds and ETFs as an ‘either/or’ decision; experienced investors would see the merits of both and make their investments accordingly.
As land is owned and properties are being developed, there are companies that specialize in the development of real estate. With a range of home construction companies existing across the nation, investing in a home building company can be quite the investment—especially if one has an exceptional clientele that operates in developing areas.
However, home construction isn’t simply limited to building properties from the ground-up. There are many property owners across Canada that lack the professional skill and labour to renovate and rehabilitate their properties. Companies that specialize both in home renovation and homebuilding can prove to be valuable investments in the real estate sector.
Real Estate Companies
As one of the more obvious investment opportunities, investing in real estate companies allows investors to maintain a hold within the real estate sector without investing in physical property. While investing in real estate companies is very similar to investing in REITs, an investment in these types of companies may offer a number of different advantages. Namely, having some stake in a real estate company might allow investors to stay updated on the real estate market, which would be useful for investors that want to stay primarily within the sector.
From companies that specialize in real estate development to ones that specialize in buying and selling property, investing in real estate-oriented businesses provide investors with the freedom to choose due to the wide selection of companies.
A big portion of investing in real estate without purchasing property, is to utilize the stock market. From REITs and mutual funds to home construction and real estate companies, the stock market offers investors with many opportunities for investment. Investment trusts, ETFs, and the other methods listed above are perfect investment opportunities for those who want to invest in real estate without the burden of property ownership.