Love real estate but don’t want to invest in your home market?
Thank you for reading this post, don't forget to subscribe!As a semi-nomadic expat myself, I certainly understand this. Location is everything in real estate, and you need to invest strategically based on the best markets to invest in – not just where you live at the moment.
Long-range real estate investing can have its own challenges, depending on how you approach investing. But in today’s world, you have more options than ever before to invest hands-on.
Try these tips for investing in real estate anywhere in the world in order of ease.
1. Public REIT
For all my objections to REITs (more on them momentarily), there is no easy way to invest in real estate.
With the click of a button, you can buy shares in any real estate investment trust in the world. You don’t even need to open a new account; You can invest from your existing brokerage account.
You don’t even need a lot of money to invest in REITs. The minimum investment is the cost of only one share, which can be as low as $10. Plus, you’ll be hard-pressed to find any real estate investment with more liquidity than a REIT. You can sell shares immediately and at any time without any penalty or cost.
Despite all those benefits of REITs, I still generally don’t invest in them. The downside of all that liquidity is volatility because investors can freely buy and sell shares at a moment’s notice.
And because REITs trade on public stock exchanges, that volatility shares an uneasy relationship with stock markets. A Morningstar study over several decades found a correlation of 0.59 between REITs and the US stock market. This means they share the same correlation as telecommunications stocks, energy stocks, and consumer staples in the broader stock market.
In turn, this means that you get very little diversification benefit from investing in a US REIT. But they still provide a convenient way to invest in international real estate and specific real estate types, such as self-storage facilities.
Connected: Are Self Storage Units a Good Investment? Advantages and Disadvantages of Owning Storage Units
2. Private REITs and Funds
What if you could invest in similarly structured funds by owning multiple assets, completely passively, but without that connection to the stock markets?
You can do this through private REIT and non-REIT funds. Instead of buying and selling shares through your brokerage account, you buy and redeem them directly from a company that has assets or asset-secured loans.
You probably know this model better as real estate crowdfunding.
In the past decade, dozens of real estate crowdfunding companies have entered the field. For example, you’ve probably heard about Fundrise and read about Seth’s experiences investing with them for over six years.
Other crowdfunding platforms with REITs and funds include StraightWise (full review here), RealtyMogul (full review here), DiversiFund (full review here), and Happinest (full review here).
Most pay strong dividend yields, and have little correlation with the stock markets. This gives them real diversification value as you build a comprehensive investment portfolio.
The downside is that most are not very liquid and charge penalties for early withdrawals. This locks in your money for several years. Consider private REITs a long-term investment best left alone for dividend and compound payments.
3. Asset-secured loan
You probably know mortgage REITs: funds that hold loans secured by real estate. But there are many other ways to invest in asset-secured loans.
Some crowdfunding platforms let you invest in an individual loan or a pooled fund of multiple loans. My favorite of these is the Groundfloor, which offers both models. You can choose personal loans, investing as little as $10 each, and they typically earn between 7% and 15% interest. Although these investments are not liquid, they are short-term, with loan terms ranging between three and 12 months on average. This is a rare thing in real estate investing.
Even more rare is the liquidity offered by their pooled debt funds. Groundfloor’s “Staircase” funds give you the flexibility to withdraw your money at any time, penalty-free. The downside to that liquidity is that the fund pays 4% to 6% interest instead of the roughly 10% average earned on personal loans.
Read our full Groundfloor review for more details on both investment types.
Alternatively, you can lend money directly to other real estate investors in the form of personal notes. Just be sure that you know and trust the investor with your money and that they have a long, verified track record of success in real estate investing.
4. Fractional ownership in rental
If you like the idea of owning rental properties, but don’t want to bother with renovations, tenants or ongoing repairs, consider buying a fractional share in a rental property.
You become a partial owner, entitled to your share of the rental income and appreciation of the property. But you invest completely passively, letting someone else find deals and manage assets.
Several fractional property investment platforms have come to market in recent years. I have invested in properties through Arrived and Ark7. Both let you buy shares in rental properties for $100 or less, and Arrived offers short-term vacation rentals in addition to traditional long-term rentals.
In fact, you can even buy shares in overseas rental properties this way. I recently spoke with the founder of Foothold, which is in the process of buying ten units in the trendy Palermo district of Buenos Aires. These will be rented out as vacation properties on Airbnb, and as someone who has lived in Palermo several times, I can tell you firsthand how livable it is.
This model allows you to take advantage of financial crunch anywhere in the world to buy property at a discount. Foothold chose Buenos Aires, for example, because Argentina has suffered a currency crisis over the past two years and sees triple-digit inflation in 2022. Banks don’t lend mortgages in that environment, which means cash investors can get deep bargains.
5. Real Estate Syndication
You can also buy fractional shares in commercial properties such as apartment complexes. It’s just as passive, and the returns are often significantly higher. I have seen deals that give more than 100% annualized returns.
This type of passive commercial real estate investment is known as syndication. You invest in the project as a limited partner, with the right to a share of the rental income and appreciation of the property. When the asset sells, you get paid proportionately.
You also get almost all the tax benefits similar to buying a property outright. In fact, you often get accelerated depreciation on these investments.
So why isn’t everyone investing in them?
First, some syndications allow only accredited investors to participate due to SEC regulations. But those that allow non-accredited investors still require higher minimum investments, typically $25,000 to $100,000. The only way to reach that high minimum is by investing as part of a real estate investment club and pooling your money to reach that minimum.
Ultimately, these investments are not liquid. Once you invest, you keep your money locked in until the property is either refinanced or sold. But this brings up one last reason to invest: Some syndicators refinance and return your initial investment, but you still retain your ownership interest in the property. You continue to earn distributions, and the asset continues to appreciate, but you’ve already got your money back. When you haven’t invested any money in an asset but continue to earn a return on it, you earn infinite returns as a percentage of your $0 investment.
6. Raw land
Some land investors become millionaires without the hassle of a single tenant or repair. Or, for that matter, ever stepping on your property.
The business model is as simple as that: buy land at a discount and sell it at full market value. When you sell, you can either sell outright or offer a land contract, which requires the buyer to pay in instalments. If they default on the installment payments, you will have to go through the costly foreclosure process (nor eviction) because no one lives there. You simply reclaim possession and list the property for sale to someone else.
Still, it takes work to choose a market for investment and to establish a system for finding deals on discounted land. For example, some investors approach landowners who have defaulted on their property taxes. Like other types of real estate, there are many ways to get good deals on land, but there is very little regulation.
If you want to learn how to invest in land, check out our Land Investing Masterclass.
7. Partner with a Local Investor
Instead of investing in long distance real estate alone, you can always partner with an experienced local investor.
They do the heavy lifting like finding deals, coordinating with contractors, overseeing repairs, and managing tenants (or hiring a property manager). You write a check and potentially help arrange the financing.
You may have to leave a percentage of the profits to your partner to compensate them for their labor. But it might be worth leaving those headaches to someone else.
8. Turnkey Rental Properties
As a recovering landlord, I can tell you firsthand that rental properties are not as idle as many pundits make them out to be.
That said, it is theoretically possible to buy turnkey properties in another city or state and appoint a property manager to handle all the day-to-day operations. I say “theoretically” because even turnkey properties often need some finishing touches, and only the best property managers are 100% reliable without any oversight. In my experience, you often have to manage the manager.
If you go this route, expect to put in a lot of work beforehand to choose the right markets to invest in and the right on-the-ground partners. The latter should include at least one property manager, real estate agent and contractor. Once you have a strong local team, you can invest with less labour.
Check out Roofstock, the marketplace for turnkey rental properties nationwide. You can read our full Roofstock review here to find out how they work.
9. Turnkey Vacation Rentals
On the one hand, vacation rentals definitely take more work to manage than long-term rentals. But I’ve actually found that vacation rental managers are more appreciative of the work required than long-term rental managers, and don’t shy away from labor.
Vacation property managers are constantly in and out of your property, inspecting it, monitoring repairs. They constantly keep their finger on the pulse of the property. In my experience, long-term rental managers rarely inspect the properties under their charge, even though they are supposed to do so once or twice a year.
Still, vacation rentals take a lot of work. In addition to finding the right property in the right market, you’ll need to (elegantly) furnish and decorate it, install and pay utilities, and (of course) hire the right local manager.
On the plus side, you might be able to live there as a tax-free working holiday while you furnish and decorate it. just a thought.
final thoughts
You can invest in real estate anywhere in the world, but that doesn’t mean you want to own a Cambodian rental property. The more passive the investment, the better, as you go along.
If you’re new to long-range real estate investing, start simple with the first five options listed above. If you are committed to direct property investing, you can venture into the latter three options, but be aware that they will take up more of your time and labor.
