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Real Estate Investments For Non-Accredited Investors
Real estate investments are a great way for non-accredited investors to diversify their investment portfolios and build wealth over time.
Here are SEVEN Real Estate Investment Options Available to Non-Accredited Investors:
1. Direct Ownership
Buy and manage your own property. This can require a significant down payment, but you get to keep all rewards from cash flow to capital appreciation.
Owning a rental property for the long term can be one of the most financially rewarding investment options. But you have to make the numbers work. You can find investment properties to rent out for more than it costs you to cover the mortgage payment, taxes, insurance, and repairs.
Additionally, you’ll gain appreciation on the rental property. According to credit karma, the average appreciation on a house is 4.3%. If you have a 20% down payment, that return is multiplied 5x to generate an actual return of 21.5%. That’s the power of leverage.
2. House Hacking
House hacking is a subset of direct ownership. However, instead of renting an entire house to another person, you rent part of the house you live in.
This can take many forms from renting out bedrooms to purchasing a duplex/triplex/quadplex and renting out the rest. There are also more creative ways to do house hacking. If you own a property with land, you might rent storage spaces for RVs or boats.
The possibilities with house hacking are abundant. It’s up to you to get creative with creating cash flow from a property you live in.
3. Joint Venture Partnerships
Another form of direct real estate investment is through joint venture partnerships. With a joint venture partnership, you bring on a partner.
This can be a great option if you don’t have the capital to invest in real estate. You can arrange a partnership if you have friends or family who have money but don’t have the time, knowledge, or willingness to manage a rental property. You manage the investment property and they provide the capital.
With a joint venture partnership, you split the equity between yourself and the investors. You’ll get significantly outsized returns on any investment because you’re working to manage the property. You might arrange 30-50% of the ownership for yourself depending on how much outside investment you use.
4. Private Real Estate Syndications
Private real estate syndications are a great way to invest in large commercial properties without the hassle of managing them yourself. With private syndications, an investor brings on multiple passive investors who contribute capital but don’t make any decisions related to the property.
Private real estate syndications are similar to joint venture partnerships, but on a larger scale and often focus on commercial real estate investing.
In a syndication, the general partner or partners will handle all of the management and decision-making. The passive investors will receive a preferred return (a guaranteed minimum rate of return) before the general partners are paid out.
Private real estate syndications are an excellent way for non-accredited investors to get exposure to large commercial properties without having to manage them.
However, not all syndications accept non-accredited investors. The syndication must be set up specifically to allow non-accredited investors through an SEC Rule 506 Regulation D exemption.
5. Real Estate Crowdfunding Platforms
Real estate crowdfunding platforms are a relatively new form of investing in real estate. It’s similar to private real estate syndications, but without the high minimum investment required. With a syndication, you own an equity share in the actual real estate project.
The way it works is that the platform pools investor funds to buy a larger property. The investors then share in the profits earned by that investment, similar to private syndications.
Real estate crowdfunding platforms offer several advantages over traditional real estate investing. First, it allows smaller investments with lower minimums than private syndications. Second, it’s more hands-off for the investor—the platform handles all the deal-making and management. Finally, it provides greater diversification than investing in a single property.
The key downside to real estate crowdfunding is that fees are often higher than traditional investments. The platforms have to charge extra fees in order to make a profit from many smaller investors. You should always understand all of the fees associated with any investment before you commit.
6. Real Estate Investment Trusts (REIT)
Real estate investment trusts (REITs) are a way to invest in real estate without actually owning a piece of property. A REIT is like a mutual fund that invests in real estate and pays out dividends to its investors.
There are several different types of REITs, including residential, commercial, mortgage-backed, and hybrid. They all have slightly different characteristics, but the basic concept remains the same: investors buy shares in a REIT and can receive income from it in the form of dividends.
You can find publicly-traded REITs on platforms like E*Trade or your bank may offer access to private REITs.
REITs may provide more liquidity than other types of real estate investments—you can sell your shares at any time. However, they also come with certain risks. For example, REITs are subject to the same market forces as stocks and can be affected by interest rates, tax laws, and other economic conditions.
Overall, REITs may be a good option for investors who want a hands-off approach to real estate investing.
But keep in mind that REITs are different than syndications in that you don’t actually own any equity in the rental properties. Instead, you own a share in a company that owns real estate.
7. Debt Investment
Debt investing in real estate is another passive way to invest in real estate. It works similarly to a loan, but instead of the bank providing the funds, you do.
With debt investments, you provide capital to developers or owners who are looking for financing for their projects. In exchange, they pay you back with interest like they would a bank. This form of investing is very low risk and can provide a steady, reliable return for investors.
The downside to debt investments is that it requires a large capital investment upfront. Also, the returns are usually smaller than those from equity investments because you don’t own any part of the actual property.
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