For most people with money to invest and a moderate to low risk appetite, real estate, and in particular residential real estate, is an obvious choice. As populations grow and cities become unaffordable and over-crowded, people will continue to flock to the surrounding areas and suburbs to live, raise families and retire. But buying a home strictly for investment purposes is unrealistic for many people, especially in this economy.
What's more, housing bubbles are real and putting all or even a sizable percentage of your money into a second home might not provide the big short-term gains you're looking for. Furthermore, if your plan is to buy a detached home or apartment and turn it into a rental property, there are new and expanding restrictions on many places that limit your ability to do that. There are, however, a number of ways to invest and enjoy the relative safety and returns of real estate without buying a home.
Real Estate Investment Trusts
Real Estate Investment Trusts, or REITs, are companies that trade on the major stock exchanges. They operate by purchasing real estate assets--land, apartment buildings, mortgages, homes etcetera--and passing the revenue onto shareholders either as capital gains, dividend or interest payments.
Apartment and residential REITS, for instance, are usually aimed at giving investors cash flow and a stable medium-to-long-term holding. What you are getting when you purchase a REIT like this is proportional access to the revenue made from, among other things, rental payments by the tenants in the buildings owned by the company.
Land
"Buy land, they're not making any more of it," so the adage goes. Land is another way to invest in real estate without buying a home. Speculating on land, however, requires more knowledge and in-depth analysis because land only appreciates in value relative to what's around, on or under it. You can buy a cheap piece of land in the middle of nowhere that will never be worth more (at least not in your lifetime) than what you paid for it.
Investing in land requires knowledge of urban planning and zoning developments, an understanding of the plans and politics of local governments and municipalities, and major commercial and residential real estate trends.
Pooled Mortgages
Pooled mortgages are a group of mortgages that are held in trust and used as collateral for mortgage-backed securities and they exist on different scales, from hundreds of thousands to hundreds of millions of dollars. Investors combine their money and put it into financing a real estate project with the expectation that they are going to get their capital back plus interest for putting it up.
Pooled mortgages can be quite risky if you do not understand the nature of the underlying assets. This is essentially much of the reason for the 2008 financial crisis, only on a global economy-destroying scale.
Bridge Loans
Bridge loans are short-term mortgages provided to real estate investors and developers to finance various stages of the construction or development of an asset. They are given to both commercial and residential real estate projects.
The thing to keep in mind with bridge loans for commercial real estate is that most new real estate investors don't have the knowledge to safely invest in short-term commercial real estate financing. There are many variables at play, as well as a considerable amount of financial analysis involved. What these investment opportunities do, essentially, is give you, the investor, the ability to become a direct lender.
Conclusion
Investing in real estate does not necessarily mean putting your money into a physical asset like a home or apartment. There are a variety of ways to allocate some of your portfolio to real estate without having to consider direct involvement. Real estate is the investment vehicle of choice for those with money to spare but who are not interested in the comparatively higher risks of other assets.
Keep the above opportunities to invest in real estate without buying a home in mind and enjoy real estate diversification without the hassle of real estate management.
