4 Ways to Look Beyond the Standard When Investing in Real Estate
Investing in real estate doesn’t always mean amassing a portfolio of traditional properties like single-family rentals. For some, becoming a landlord may not be their dream. Nevertheless, would-be investors want to reap the benefits of building passive income through real estate.
If you relate, a more out-of-the-box approach to real estate investing is up your alley. Maybe you want to become a landlord someday, but not now. Or, you realize a slightly more hands-off approach will align better with your needs. The good news is you can form a game plan after reading ways to look beyond conventional real estate investments. Here are four ideas to get you started.
1. Invest in Mobile Home Parks
Mobile home parks offer a few options for real estate investors. You can invest in parks where tenants own their homes but still pay for the rental space the mobile home sits on. Another option is to purchase mobile home parks where you own the land plus the homes. The latter requires a higher level of day-to-day involvement on your part. However, the first choice is ideal if you want a lower-maintenance investment.
Due to housing affordability challenges, the demand for mobile homes is increasing among diverse age groups. The median price of conventional single-family houses hovers around $400,000, a price tag that may be too steep with higher mortgage interest rates. Mobile homes, whether owned or rented, provide viable, affordable housing.
Real estate investors can look at mobile home parks as a way to start small and scale. Because affordable housing is in demand, mobile home parks could help you learn the ropes. Investing in a park where tenants own their homes means all you must maintain are the common areas. The tenants take care of the rest.
You can invest in a smaller park, get your feet wet, and extend your portfolio once your passive income begins to flow. Building a real estate empire is something Lifestyle Investing expert Justin Donald recommends taking slow. He says, “It’s important to start small and scale gradually. As you learn, you will be able to minimize your risk.” You can lower your risks further by using seller financing or investing in a park with a partner.
2. Rent Out Storage Space
You may already have the real estate you need to generate passive income. Extra space in the basement and garage are examples. You might also have a spare room you can rent, but not for someone to live in. Instead, rent the additional room you have as a storage space.
Potential tenants will pay to store their belongings, including vehicles. Some caveats you’ll want to double-check are HOA bylaws and insurance policies. You can work in the additional costs of higher insurance premiums into the rent or have your “room” renter show you proof of renters insurance. You may have a more challenging time adjusting your personal home premium to cover the replacement costs of those added belongings after the fact. Likewise, violating your HOA’s rules isn’t a great idea.
The thought of filling up empty space in your home with other people’s stuff isn’t enticing. You might try investing in storage units. You could either buy an existing facility or get into the construction game. An impressive 40% of Americans rent self-storage units. And for investors, the average return on self-storage facilities was 20.87% between 2001 and 2023.
If you think about it, there’s less upkeep with self-storage units. While you might still have to deal with tenant “evictions” and property repossessions, there’s only space and common utilities to maintain. And you’re not dealing with the uncomfortable situation of evicting someone from their home. Routine security and monitoring for the facility will be a likely expense but probably less costly than constantly replacing appliances and updating interior designs.
3. Try House Hacking
What is house hacking? It’s when you buy a multi-family dwelling and live in one of the units. Meanwhile, you rent the remaining units to long-term or short-term tenants. A short-term tenant could be a tourist needing a place to stay on vacation. Additional examples include students in town for a low-residency academic program or those who have recently divorced or separated.
House hacking is a creative way to invest in real estate while allowing you to start small. The cash flow you get from your tenants may cover your mortgage, HOA dues, utilities, and ongoing maintenance costs. Plus, you’ll be living at the property, so you’ll have an easier time keeping an eye on the rented units.
A downside of house hacking is being an active landlord. Yes, you’re located right next door. But because you’re also your tenant’s neighbor, you might not have as much privacy. Furthermore, renters might expect you to respond more quickly to maintenance requests and problems.
There are also the additional costs of purchasing multi-family dwellings and keeping the utilities on when units are unoccupied. Still, the added cash flow could help you build equity in your home faster. And if you don’t mind roommates, you could try house hacking with empty rooms in a single unit you already live in.
4. Put Your Money in Mutual Funds and Investment Trusts
Real estate mutual funds and investment trusts are a passive investor’s dream. Your role is typically limited to contributing funds while someone else manages the properties. As your investment earns income, you’ll get a portion of it in dividends and proceeds when managers sell the properties.
Often, mutual fund and investment trust opportunities are discovered with an online search. For investors with IRA and 401(k) brokerage accounts, real estate investment trusts and funds could be in your array of choices. Crowdfunding platforms are other ways to locate available trusts and funds. Professional organizations like real estate investor associations allow you to network your way to fund partnerships.
With trusts and funds, you’re not alone in your venture. It’s a way to mitigate investment risks by sharing the costs and profits. As crowdfunding platforms will inform you, individual investors don’t usually buy 100% of available properties. You buy a piece of ownership in vetted residences and other property types. Yes, someone else does the research, determining which investments are most likely to turn a profit, and you invest.
The legwork is taken off your plate for the most part. You’ll want to do your due diligence to ensure the fund or trust’s anticipated ROI meets your goals. Check out the required hold time, as this will also need to align with your objectives.
Looking Beyond the Standard
Real estate investments can add to your income, whether it’s active or passive. While going the conventional route is best for some, it might not match your needs. Wanting to start small and take a hands-off approach leads you to less-thought-of opportunities. Whether it’s a mobile home park or an investment fund, moving beyond the real estate standard makes investing more plausible.