How to Invest in Real Estate — Without Owning a Single Property

How to Invest in Real Estate -- Without Owning a Single Property

You may have more options for breaking into real estate than youd think.

Key Points

  • Owning real estate is a great way to diversify your portfolio.
  • Buying physical properties isnt the only way to get a piece of the real estate market.
  • REITs dont require you to own or maintain property, and theres a huge upside to investing in them.

There’s lot of money to be made in real estate investing. And if you’ve traditionally limited your portfolio to stocks and bonds, owning real estate is a great way to branch out and diversify.

But many people are nervous to dabble in real estate investing for one big reason: They don’t want to take on the risks of owning physical properties. And that’s understandable.

When you buy properties, there’s the potential to make money by collecting rental income and also by holding on to those properties until they appreciate in value and then selling them at a profit. But buying physical properties also means having to pay to maintain them, not to mention bearing the risks that come with relying on rental income.

Image source: Getty Images.

You never know when a property of yours might sit vacant for months on end if rental demand drops locally. Or you might have a tenant who trashes your home, leaving you on the hook for repairs.

There are liquidity issues to consider as well. Tying up money in a physical property could mean running into a financial crunch or missing out on other investing opportunities.

But here’s some good news — it’s more than possible to invest in real estate without actually buying property. And if you don’t want to assume the risks of owning properties, there’s one option worth exploring.

Load up on REITs

REITs, or real estate investment trusts, are companies are operate and derive revenue from the properties they own and manage. Many REITs trade publicly just like stocks do, so you can track their performance and share price. REITs also tend to pay higher dividends than stocks, making them a great option for generating steady income.

Now within the world of REITs, there are different options you can look at. Industrial REITs are a potentially strong buy right now because an explosion in digital sales fueled by the pandemic has created a broad need for warehouse and distribution center space. Similarly, an increasingly digital-centric world makes the case to buy data center REITs.

Healthcare REITs is another category worth looking at. What makes healthcare unique is that it’s a recession-proof industry. People need hospitals and medical facilities even during tough economic times. And so healthcare REITs have the potential to be profitable even under the most trying of circumstances.

Of course, some REITs are a bit riskier these days. Take hospitality REITs. The travel industry has been battered by the pandemic, and many hotels are still sluggish. Until things improve on the COVID-19 front, hospitality REITs could be a questionable buy.

Similarly, retail REITs might make you a little nervous due to the sheer number of store closures we’ve seen over the past few years. And as more consumers adopt e-commerce habits, we could see the need for physical stores wane. If that happens, retails REITs, which operate malls and shopping centers, might struggle.

The best of both worlds

Investing in real estate could make you quite wealthy over time, and if you don’t want to take on the risks of owning physical properties, REITs are a reasonable alternative. While there are certainly varying levels of risk and opportunity within the realm of REITs, they’re a good way to start dabbling in real estate without getting in over your head.