How To Invest In Real Estate Without Buying Property

Real estate has a reputation for making people rich — and there’s truth to that. Historically, real estate has delivered solid returns, outpaced inflation and offered a reliable stream of passive income. Home appreciation rates, for example, tend to grow 4.5 percent annually on average, according to data from the Federal Housing Finance Agency.

But buying property carries risk. It can be expensive, and often comes with maintenance headaches that make the income you generate feel anything but passive.

However, there are ways to tap into the potential upside of real estate without signing a mortgage, including buying REITs in your brokerage account or signing up for a crowdfunding platform.

5 ways to invest in real estate without buying property

Whether you’re priced out of the housing market or don’t want the headache of tenants, these alternative real estate investments let you share in the profits without owning the asset.

They all come with trade-offs though, and whether they make sense for you depends on how much work you’re willing to put in and your ultimate goal with the investment.

1. Real estate investment trusts (REITs)

How it works: REITs are companies that own, operate or finance income-generating real estate. When you invest in a REIT, you’re essentially buying shares in a company that makes money from properties — whether that’s office buildings, apartments, shopping centers or even cell towers or manufactured homes. Publicly traded REITs are listed on stock exchanges and can be bought just like regular stocks.

Why people invest: REITs are liquid, diversified and hands-off. They’re known for paying high monthly dividends since U.S. law requires REITs to pay out at least 90 percent of their taxable income to shareholders.

Expected returns: Historically, REITs offer average annual returns of about 11 percent, according to Nareit, but that can swing widely with the market.

Risks: REITs have underperformed much of the U.S. stock market over the past five years, due in large part to a lull in the real estate market and high interest rates. Also, while REITs usually offer a high dividend, those dividends can quickly get cut if the real estate market stagnates. And dividends are taxed as ordinary income, not at the lower capital gains rate.

2. Online real estate investing platforms

How it works: Platforms such as Fundrise, YieldStreet and Crowd Street let you invest in real estate development or income-producing properties with as little as $10 (though some require as much as $25,000). You can pool your money with other investors through these real estate crowdfunding platforms to fund commercial or residential projects.

Other apps, such as Groundfloor, let you buy into fractional real estate debt starting at $100.
You make money by funding short-term real estate loans. Groundfloor connects you to borrowers who need quick cash to renovate and sell properties. You invest in a piece of that loan, and when the borrower sells or refinances the property, you get paid back — your principal plus interest. However, you need to carefully vet the loans you’re making — it could take years to collect if the person defaults or the property goes into foreclosure.

Why people invest: It’s low-barrier, passive and gives you exposure to deals usually reserved for accredited investors.

Expected returns: About 4.5 to 11 percent average annually, depending on the platform and risk level of the investment.

Risks: These are long-term, illiquid investments. You can’t pull your money out easily, and it’s usually locked up for three to five years. Some platforms also come with higher fees than you’d pay to own REITs.

3. Real estate ETFs

How it works: These are exchange-traded funds that hold a basket of REITs or real estate-related stocks. They might include stocks of real estate developers and operators alongside REITs. You’re buying into an entire sector with one click.

Why people invest: Real estate ETFs are easy to buy, highly liquid and low cost. They’re great for beginners or people who want to diversify their portfolios beyond stocks and bonds. They also tend to be an affordable option. Vanguard’s Real Estate ETF (VNQ), for example, has an expense ratio of only 0.13 percent.

Expected returns: About 6 to 10 percent average per year, depending on overall real estate market trends.

Risks: Like any ETF, they’re vulnerable to market volatility and interest rate increases. Similarly, returns depend heavily on macroeconomic factors like inflation and rate hikes.

4. Pooling money with other investors

How it works: Real estate syndication and private equity real estate funds both pool money from multiple investors to fund real estate projects — but the barriers to entry are generally much higher than crowdsourcing platforms like Fundrise.

Private equity real estate funds are mostly reserved for wealthier investors. The sponsor combines investor capital with borrowed funds to finance deals, aiming to generate returns for everyone involved. These deals are typically offered as whole funds, meaning you invest in a bundle of properties without much say over what’s in the mix.

Real estate syndication, on the other hand, can be slightly more accessible. Investors get a share of the ownership and profits but don’t handle day-to-day decisions. Deals are offered one at a time, so you can pick exactly what you want to invest in. You’ll see the projected numbers upfront and can choose the projects that align with your goals and risk tolerance.

Why people invest: It’s a way to earn steady, predictable income without owning property.

Expected returns: About 6 to 8 percent annually, though it varies widely depending on the project, timeline and arrangement.

Risks: These arrangements can go sideways fast if the operator or sponsor doesn’t know what they’re doing. With syndications, you’ll need to assess the sponsor’s track record and the deal’s financial projections and risk factors. They also generally require a lot of capital (think $250,000 or more), and you may need to be an accredited investor to get in on the action. If you’re interested in this type of real estate investing, it may pay off to consult a financial advisor first.

5. Buying property without buying a first home

How it works: This one breaks the rules a bit, since you’re technically buying property. But instead of buying a home to live in, more people (especially millennials and Gen Zers) are buying investment properties first — then continuing to rent their own place. You might buy commercial property, a short-term rental in a tourist area, a duplex where you rent out both units or a small single-family home in a more affordable state than where you live.

Many investors hire property managers to run day-to-day operations and maintenance in order to make it as passive as possible.

Why people invest: To build wealth through rental income and property appreciation. The idea is to skip the down payment grind, rent where you live and let your investments pay for your future dream home.

Expected returns: Varies depending on rent prices, property appreciation and property management costs.

Risks: You’re still a property owner, so you’re on the hook for vacancies, maintenance and economic downturns.

Does it make sense to invest in real estate without buying property?

For many people, investing in real estate through REITs and real estate ETFs makes sense if you’re trying to diversify your portfolio. Since the early 2000s, a portfolio with at least 5 percent holdings in real estate — such as REITs — showed better returns and lower risk than a traditional 60/40 equity/bond portfolio, according to an analysis by Morningstar.

But don’t treat these options like a shortcut to getting rich. When it comes to platforms like Groundfloor, Fundrise or other crowdfunding options like syndication, you’ll need to pay attention to the details. Your outcomes depend heavily on your personal risk tolerance and how much time you’re willing to spend doing the legwork. You’ll need to pick individual deals, weigh risk grades, track timelines and deal with less liquidity.

For people who don’t want to be landlords or can’t afford to buy into pricey markets like New York or San Francisco, these alternatives offer a way in. You get a slice of the action — some exposure to real estate, a potential income stream and a shot at upside growth — without going all-in on a mortgage or property management.

But don’t go in thinking these investments will make you rich overnight. Make sure to do your homework and ask questions. Dig into the numbers. Don’t let slick marketing or the promise of outsized returns cloud your judgment. And remember: if it sounds too good to be true, it usually is.

Pros and cons of real estate investing

Pros

• Lower entry costs: Some options start at $10, not $100,000.
• Diverse portfolio: Since real estate isn’t closely correlated to equity or bond returns, it can help you diversify your investment portfolio.
• Passive income: Many of these options generate recurring cash flow.
• Liquidity (in some cases): REITs and ETFs can be sold on demand, unlike houses.

Cons

• Limited control: You can’t pick the paint color or tenants. You also don’t participate in the full upside, you only share in a portion of the income.
• Fees: Fund managers, platforms and sponsors take their cut. Sometimes a big cut.
• Illiquidity: Except for REITs and ETFs, you’ll need to commit to locking your money up for the long haul, usually at least three to five years.
• Due diligence required: You need to research platforms, understand risks and vet opportunities.

Bottom line

You don’t need to own a house or collect rent checks to make money in real estate. REITs, ETFs, crowdfunding platforms and syndications offer a chance to put money into the sector with less startup capital. However, real estate without property is still real investing. Know the risks, set your expectations and pick the strategy that fits your long-term financial goals.

Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.