Sujoy agreed, “Yes, Dad, I got your point. Investing in real estate can be very lucrative over the long term. But I have started my career only about 4 years ago. Where will I find enough money to invest in real estate? It needs a lot of money, right?”
“Wrong,” said his father, “You can invest in real estate with a modest capital. In fact, you can invest in properties without buying a property.”
“How is that possible?” asked Sujoy.
“Let me tell you of various ways to do that,” said his father.
In this article, we will discuss various innovative ways of investing in the real estate sector without actually buying properties.
Let’s go.
Real Estate Investment Trusts
Organizations that own, manage, or finance income-producing real estate in a variety of sectors, including hotels, apartment buildings, retail establishments, and warehouses, are known as Real Estate Investment Trusts (REITs). REITs function similarly to mutual funds and can be exchanged on major markets, just like stocks.
The primary aim of REITs is to invest in assets that produce regular income, which is then distributed to investors as dividends.
REITs offer several advantages, such as high liquidity, portfolio diversification, and a consistent income stream.
An added advantage is that they are regulated by the Securities and Exchange Board of India.
Fractional Ownership
Fractional ownership refers to splitting the value of an asset among investors, with each getting a share of the property or asset.
This approach enables individuals to invest in premium commercial or residential properties, such as office buildings, retail spaces, or co-living units, by owning a fraction of the asset.
Similar to REITs, SM REITs (Fractional Ownership Platforms are considered a sub-class within the REIT regulations for assets valued between ₹50 and ₹500 crores) are fully regulated by SEBI, with units of each of the schemes listed on the stock exchanges.
ETFs
Exchange-traded funds (ETFs) are investment instruments listed and traded on stock exchanges.
Real estate ETFs, in particular, provide exposure to property-related assets without the need to directly own property. They provide strong liquidity and investor accessibility.
They do, however, have some disadvantages, such as the potential for interest rate-related swings to impact returns, fund management fees, and exposure to market volatility.
InvITs
Infrastructure investment trusts are investment instruments that work like mutual funds and are regulated by SEBI.
Infrastructure projects that produce revenue, like power transmission lines, operating roadways, or even assets that are still under development but have the potential to create income in the future, are financed using the money collected through InvITs.
When compared to REITs, the structure and operation of both are quite similar.
Real Estate Crowdfunding
Real estate crowdfunding is a method of investment in which a group of people invests a modest amount of money in a particular real estate venture.
It encourages investors to combine their funds to fund real estate investments through online financial technology (fintech) or crowdfunding portals, to make a one-time or continuous profit.
It allows investors to become shareholders of properties that they would never be able to purchase as individuals.
Mutual Funds
Real Estate Funds are sector funds that invest in securities of companies from the real estate sector. In other words, these funds provide the capital to the real estate company to develop a property.
A real estate fund might invest in real estate companies or REITs (Real Estate Investment Trusts) based on the investment objective of the fund.
Moreover, these funds can act as a hedge against inflation. As property values and rental rates increase, so does the fund’s worth. One of the strengths of real estate mutual funds lies in their ability to offer balance; gains from well-performing companies can offset losses from underperforming ones within the same fund.
They offer a great alternative to buying an investment property that requires considerable capital. You can benefit from the growth of the real estate sector without buying a property.
Real Estate PE funds
For investors with a higher risk tolerance and a larger investment capacity, private equity (PE) funds offer an opportunity to access large-scale, institutional-grade real estate projects.
These funds invest in high-growth projects by pooling the money of accredited investors. The possibility for significant returns, which typically aim for annualized growth of 15-20%, and long-term appreciation from large-scale projects are the main advantages of PE funds.
Managed by experienced real estate professionals, these funds leverage expertise to optimize returns. However, PE funds typically require a higher minimum investment, and they are suitable for more seasoned investors.
The Final Word
It is possible to invest in real estate without a large capital in several ways. However, it is better to determine your investment horizon, investment approach, and investment plan (whether lump sum or periodic payment) before investing. It is also advisable to consult a property investment consultant who can assess and help you develop your financial portfolio.
