How to Invest in Real Estate Without Being a Landlord
Working as a landlord can be daunting task. What if you could invest in real estate without being one? Read this article and learn more.
If you are wanting to enter the world of real estate investment, then you will know that it can be intimidating. There are so many ways to invest, all with varying degrees of cost and risk. You may also think like so many that the only real way to properly invest without experience and prior knowledge is to be a landlord. Well, the good news is that this is not the case.
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What is a landlord, and how do they make money?
If you have rented in the past, then you would have encountered a landlord yourself. The landlord is the owner of the property that you are renting, and they accept your rent checks. It may seem like a perfect investment option. They sit back and get paid for being the owner of a rental property. While this is true and rental income is how they make their money, there is a lot of work behind the scenes.
Pros and cons of being a landlord
If you are wanting to invest in real estate and are considering becoming a landlord, you will need to consider the pros and cons. These will of course be dependent on the type of property that you own and the location.
- Rental income. This is why people become landlords. The rental income help pays for the mortgage costs.
- Low time commitment. Being a landlord is in no way a full-time job, rather it is considered a side hustle. There is some work involved in managing the property, and this is often outsourced to an agent.
- Tax deductions. Rent payments considered income so are taxed. As Smbceo explains, the government sees a landlord as being a business owner. So some expenses will be tax deductible like insurances, cleaning, depreciation, maintenance, and any renovations.
- Costs. Unfortunately, being a landlord involves more than just accepting a rent check. There are many costs associated, and these can often be unexpected and high. The cost of purchasing the property is the biggest cost with interest being ongoing. Also consider agent costs, maintenance, and city costs (councils).
- Tenant issues. Not everyone is a perfect tenant. You hear horror stories all the time of tenants destroying their rental properties, fleeing without paying rent, and refusing to leave when required. It can be daunting to think that a property that you own is at the hands of a stranger. Agents can help in choosing good tenants, however there is no sure-fire way to guarantee a law-abiding tenant that will pay on time.
- Legal issues. Being a landlord comes with responsibilities, and if these are not met properly then legal action can be serious. There are numerous laws and regulations, and you could be shocked to realize that often the tenants have more legal rights than the landlords. It can be easy to inadvertently end up on the wrong side of the law.
As can be seen, there are both many pros and cons of being a landlord, and it would not suit everyone. While the pros can be beneficial and are mostly financial, the cons can be awfully bad if not managed properly. The consequences of mismanaging as a landlord can be more than losing money. It can mean losing your property or even getting in trouble with the law.
What are other ways of investing in real estate?
If you have decided that being a landlord is not the path for you, then you will want to look at some common alternatives for investing. The best choice for you will of course depend on your financial position, your personal preference, and how much time and effort you are willing to devote.
Some common investment strategies that do not involve being a landlord are mentioned by Forbes as being the following:
- Invest in mutual funds and investment trusts. These allow you to invest in real estate without having to purchase and manage a physical property. They can bring in high rewards and you do not have to worry about the complexities of managing tenants and agents.
- Invest in construction. The construction industry is booming, and so investing now could bring about high returns in the future. This is another way that you can have your money work for you without having to purchase a single physical property.
- Fix and flip. If you have money and time to spare, flipping can be vey profitable. While it does involve the purchase of a property, you will not be renting it out. Rather you spend more money to renovate it, and then sell it as a profit. This is a lot more work and time consuming than being a landlord, but the rewards can be worth it.
How to invest in real estate through crowdfunding
Coming up with the capital required to start your investment can be one of the bigger battles, and crowdfunding is one way to gain access to funding. Investopedia describes crowdfunding for real estate as a new path for investors, but one that is worth considering. If you are wanting to invest big but do not have the resources needed, the crowdsourcing is a good way to source investors. You can use a variety of sources, from social media to people you know and even through crowdfunding websites like iFundng.
Once you have found your fellow investors, you will work together to find an investment. This will allow you gain access to markets that would have been pout of your reach on your own.
While many people experience great success as a landlord, it is not for everyone. And there are so many alternatives when it comes to investing in real estate. If you are not comfortable with the idea of someone living in your property, or if you think that the role of landlord just does not suit you, then you will be glad to know of all the different ways you can invest.
Charles is the founder of infoSpike.com. His real estate investing experience started in 2004 and he is currently focused on rental property projects. He enjoys learning about real estate investing, personal finance, and marketing. Read more about Charles here.