Alternative Investments in Real Estate

There are several opportunities to invest in real estate without touching the 3 Ts (Tenants, Toilets and Trash). If you would like some great returns without dealing with the actual real estate or people who live or occupy the properties, consider the following:

Note Investing-You may have heard of it referred to as ‘holding paper’ or Non-Performing Loans (NPL). NPL or Note investing is a way to invest in real estate without actually owning the property. Note investing can be done with commercial and residential paper (mortgages). You essentially buy the debt that is attached to the mortgage and you become the bank! This is an area that a lot of people are not familiar with and therefore don’t touch because they think it’s too complicated. Once you set up a system, in my opinion, it is actually less arduous than being a landlord and dealing with property, however, you do still have the potential of owning the property via foreclosing on the loan if the mortgagor stops paying. You can also purchase performing loans that are not in default.

Real  Estate Crowdfunding-There are a few online marketplace or peer-to-peer lending sites available for crowdfunding in equity or debt, multi-family, industrial, and even single family homes. In most instances, you have to be an accredited or institutional investors including family offices, registered investment advisors, private equity firms, hedge funds, banks, and asset managers due to Federal Securities laws. An accredited investor means you must meet certain thresholds as defined by the Securities and Exchange Commission under rule 501 of Regulation D. In order to qualify as an accredited investor, you must meet one of the following:

  • Earn an annual income per individual of over $200,000 per year ($300,000 per couple) with the expectation of maintaining such level of income in the future.
  • Have a net worth of more than $1 million (individually or jointly), excluding the value of a primary residence.
  • Be a bank, insurance company, registered investment advisor, business development company, or small business investment company.
  • Be a general partner, executive officer, director or a related combination thereof for the issuer of a security being offered.
  • Be a business in which all the equity owners are accredited investors.
  • Be an employee benefit plan, a trust, charitable organization, partnership, or company with total assets in excess of $5 million.

Some of the benefits to investing via crowdfunding is that you have more access to to deals, the minimum amount required is less than if you were investing individually.

Real Estate Investment Trusts-A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges like a stock. REITs provide investors with an extremely liquid stake in real estate. They receive special tax considerations and typically offer high dividend yields.

REITs, an investment vehicle for real estate that is comparable to a mutual fund, allowing both small and large investors to acquire ownership in real estate ventures, own and in some cases operate commercial properties such as apartment complexes, hospitals, office buildings, timber land, warehouses, hotels and shopping malls.

All REITs must have at least 100 shareholders, no five of whom can hold more than 50% of shares between them. At least 75% of a REIT’s assets must be invested in real estate, cash or U.S. Treasurys; 75% of gross income must be derived from real estate.

REITs are required by law to maintain dividend payout ratios of at least 90%, making them a favorite for income-seeking investors. REITs can deduct these dividends and avoid most or all tax liabilities, though investors still pay income tax on the payouts they receive. Many REITs have dividend reinvestment plans (DRIPs​), allowing returns to compound over time.





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