Did you know that in the realm of real estate investment, buying physical property is no longer the only way to reap benefits? The traditional notion of property purchase as the sole means to profit is a relic of the past. As the industry evolves, many new pathways have surfaced, presenting investors with opportunities that were non-existent just a few decades ago.
This article explores these alternative avenues, providing insights into strategies that blend technology, market knowledge, and innovation. If you’ve ever hesitated about managing bricks and mortar, this guide might change your investment game.
Traditional Real Estate Investment Methods
Traditional real estate investment involves buying, selling, and managing properties. As an esteemed investment avenue, it includes roles like being a landlord, flipping properties, and exploring REITs. With enduring appeal, it adapts to emerging asset classes and new markets, continuously captivating investors.
To better appreciate the journey of traditional real estate investment, here’s a brief snapshot of the changes over the years.
Changes Over the Years
|Pre-2007||Historical housing data made it seem like prices could continue to climb indefinitely. With few exceptions, the average sale price of homes in the U.S. increased each year between 1963 and 2007.|
|2007||The start of the Great Recession.|
|Spring 2020||Home prices took a small hit at the onset of the COVID-19 pandemic.|
|2022||As vaccines were rolled out and pandemic concerns waned, home prices accelerated to reach all-time highs.|
|2023||The real estate industry is moving beyond what it perceives as cyclical headwinds — i.e., rising interest rates, declining gross domestic product (GDP), sinking deal flows — and taking a long-term approach to real estate assets.|
Real Estate Powerhouses of 2023
In the vibrant landscape of real estate in 2023, several magnates have left an indelible mark with their leadership and vision. Some of the most influential figures, as per the Swanepoel Power 200 list, are:
- Gino Blefari, President and CEO of HomeServices of America.
- Gary Keller, Founder and Executive Chairman of Kwx.
- Glenn Sanford, Founder and CEO of eXp World Holdings.
- Ryan Schneider, CEO and President of Anywhere Real Estate.
- Richard Barton, Co-founder and CEO of Zillow Group.
The Rise of Alternative Investment Strategies
In recent years, the investing landscape has shifted from traditional methods towards alternative investment strategies, driven by the quest for diversification and potentially higher returns. These alternatives challenge the norms of conventional investment categories and present innovative avenues for capital growth.
What are the Alternatives?
Alternative investments are financial assets that stand apart from traditional stocks, bonds, and cash. They encompass a diverse range, including:
- Private equity or venture capital
- Hedge funds
- Managed futures
- Commodities and derivatives contracts
- Real estate
- Art, antiques, and real assets like farmland and fine wine.
Why are they Gaining Popularity?
The surge in alternative investments’ popularity stems from a desire to diversify portfolios and tap into potentially higher returns. Traditional investments have lost some luster due to the limited diversification achievable through stocks and bonds, low-interest rates, and market volatility.
Investors now lean towards alternative options with reduced portfolio risk and access to different asset classes and markets. In fact, alternatives could generate half of the industry revenue in just a few years, even though they accounted for only 12% of the staggering $153 trillion global investable market in 2020.
Significant Changes in the Landscape
Investors are continuously adapting, with heightened interest in alternative investments due to their potential for inflation hedging, long-term growth, and appreciation. Whether it’s reducing exposure to public markets, mitigating economic uncertainties, or chasing returns, the alternative investment industry has witnessed profound transformations:
- Blurring Boundaries: A melding of public and private capital.
- Accessibility: The rise of platforms like crowdfunding and peer-to-peer lending democratizing access for retail investors.
- Technological Advancements: 2023 is poised to witness a surge in technologies that streamline alternative investments, from tokenization to SaaS solutions.
- Performance: In the challenging market of 2022, alternative strategy funds showcased resilience, with the average fund declining by just 2.74%, faring significantly better than major indexes.
- Interest in Real Assets: Real assets like art, farmland, and wine are gaining traction, offering portfolio diversification and capital preservation against external factors and market sentiment.
5 Innovative Ways to Invest in Real Estate Without Owning Properties
Navigating the real estate market can be independent of direct property ownership. Here’s a dive into alternative avenues that promise potential returns without the hassle of managing physical properties:
Investing in Real Estate through Real Estate Investment Trusts (REITs)
REITs specialize in holding a portfolio of income-producing real estate assets. By investing in REITs, investors buy shares of companies that primarily deal with real estate, combining the tangibility of real estate with the flexibility of stock trading.
- Liquidity: Unlike real property, REITs are traded on major stock exchanges, allowing quick entry and exit.
- Diversification: One can gain exposure to different real estate sectors, including commercial, residential, and even niche sectors like data centers.
- Dividend Income: REITs are legally obligated to distribute a significant portion of their profits, leading to a potentially steady income.
- Moderate Risk
- REITs are swayed both by the broader stock market and specific real estate market conditions.
Types of REITs
There are several REIT types, each with its distinct focus and investment strategy:
- Equity REITs: Directly own properties and earn income mainly from rents. From shopping malls to apartment complexes, they cover a broad range.
- Mortgage REITs: They play in the financing space, earning from the interest differential between their short-term borrowings and investments in longer-term real estate loans.
- Hybrid REITs: A blend of both worlds, these REITs both own properties and hold real estate loans.
Exploring the Potential of Real Estate Crowdfunding Platforms
A modern approach to real estate investment, crowdfunding platforms pool together small sums from multiple investors to fund larger real estate projects.
- Low Entry Point: One can start investing with minimal funds, breaking the traditional barriers of real estate investment.
- Diversification: With many projects available, investors can spread their capital across various ventures.
- Operational Ease: Investors can benefit from real estate returns without day-to-day management.
- Moderate to High
- The platform’s credibility and the success of individual projects influence the risk.
Leveraging Real Estate Investment Partnerships and Syndications
Pooling resources with other investors or joining an established real estate syndicate can amplify one’s investment potential.
- Shared Capital Requirement: Large real estate deals become accessible as investors share the financial burden.
- Expertise: Syndications often involve experienced real estate professionals who bring valuable market insights and strategic acumen.
- Networking: Engaging in partnerships can expand one’s professional network, leading to future collaboration opportunities.
- While collective expertise can be advantageous, reliance on management decisions can also be a potential vulnerability.
Investing in Real Estate through Real Estate Notes and Mortgage-Backed Securities
This investment strategy revolves around purchasing the debt associated with real estate. Essentially, investors play the bank’s role instead of being the landlord, earning from the interest accrued on the debt.
- Passive Income: Investments in these instruments can generate consistent income streams through interest payments.
- Collateral: In cases of borrower defaults, investors have the property’s backing as collateral, providing a protective layer.
- Flexibility: Investors can often choose the duration and terms of their investment, tailoring it to their financial goals and risk tolerance.
- Moderate to High
- While the property acts as collateral, navigating through defaults, especially in volatile markets, can be challenging and may require legal involvement.
Case Studies: Successful Examples of Innovative Real Estate Investment Strategies
Real estate investment is undergoing a paradigm shift, with several companies leading the charge in innovative strategies. Rather than merely focusing on acquiring physical properties, these trailblazers employ unique methodologies that change the game for investors. Here’s a look at three companies making waves:
Atlant: Decentralizing Real Estate with Blockchain
Atlant operates on a blockchain-based platform, decentralizing the real estate market through tokenized ownership and peer-to-peer rentals. By tokenizing ownership, Atlant provides a simplified property investment and transfer method. This approach paves the way for a liquid real estate market where prices are transparent.
In addition, their peer-to-peer rental system significantly curtails fees for both tenants and lessors, addressing prevalent issues like fake reviews and fabricated ratings that plague centralized rental platforms such as Airbnb.
Roofstock: Simplifying Single-Family Home Investments
Roofstock has positioned itself as an online nexus for investors interested in single-family homes. By connecting buyers with sellers directly, Roofstock facilitates seamless transactions.
However, what sets them apart is their meticulous diligence process: they vet property markets thoroughly, assigning ratings based on factors like neighborhood quality, school districts, and crime rates. Post-purchase, investors are linked with vetted local property managers, streamlining long-distance real estate investment.
Fundrise: Crowdfunding Real Estate for All
With an entry point of just $10, Fundrise has democratized real estate investment. As a crowdfunding platform, Fundrise merges direct ownership of properties like apartment buildings with loans against other properties.
How does it work? It’s simple. Investors pour funds into Fundrise, which the platform channels into enlarging their portfolio. It offers a hands-off approach to real estate, demanding zero active involvement from investors.
Traditional real estate, once limited to buying and managing properties, has seen marked transformations from the pre-2007 boom to the 2023 cyclical adaptations. With industry giants and innovators at the helm, the landscape further expands, blending classic methods with emerging strategies all riding on technology’s transformative wave.
The investment sphere is evolving, pivoting from typical stocks and bonds to diverse alternatives. Driven by a thirst for diversification and richer returns, many innovative ventures intertwine real estate with technology, offering transparency and simplifying investments. Where we go from here remains to be seen. But what we do know is the future of real estate is both exciting and accessible without buying property.
Frequently Asked Questions
Traditional real estate investment generally involves buying, selling, and managing properties. Common roles include being a landlord, flipping properties, or investing in REITs.
Some of the real estate magnates in 2023 include Gino Blefari, CEO of Home Services of America; Gary Keller, Founder of Kwx; Glenn Sanford, CEO of eXp World Holdings; Ryan Schneider, CEO of Anywhere Real Estate; and Richard Barton, CEO of Zillow Group.
Alternative investments, ranging from private equity to art, offer diversification and potentially higher returns. Given the limited diversification achievable with traditional stocks and bonds, coupled with market volatility, investors are turning to alternatives for reduced portfolio risk and access to varied asset classes.
There are innovative methods such as investing in REITs, leveraging real estate crowdfunding platforms, joining real estate investment partnerships or syndications, buying real estate notes or mortgage-backed securities, and exploring platforms that use blockchain technology for tokenized ownership.
2023 is seeing technological advancements like tokenization and SaaS solutions that streamline the process of alternative investments, making it more accessible and efficient for investors.
Reed Goossens is an Australian-born real estate entrepreneur, investor, author, public speaker, and an all-around good bloke. Reed got his start in real estate investing back in 2012 when he moved to the US.