3. Crowdfunded Loans Secured by Real Estate
Some real estate crowdfunding companies let you pick and choose individual loans to fund.
My favorite of these is Groundfloor. You can invest as little as $10 toward individual loans secured by properties (although the minimum initial transfer to open an account with Groundfloor is $1,000).
These are short-term purchase-rehab loans to real estate investors, paying 7.5-15% interest. They typically repay in full within 6-24 months, and you can see the repayment term when you invest. Since its launch in 2013, Groundfloor has returned remarkably consistent returns around 10% when you average all loans together each year. Read our full Groundfloor review here for full details.
For an entirely different model, check out Concreit. They offer a pooled fund model, where you invest on a combined fund rather than picking and choosing loans. It pays lower returns in the 5.5-6.5% range, but here’s the kicker: you can withdraw your money at any time.
Consider it an excellent holding area for your investment capital while you wait for other real estate investments to come along, or as a secondary emergency fund.
4. Private Notes
Alternatively, you can lend money to other real estate investors yourself. The legal document that the borrower signs is called a promissory note (or just “note” for short). It’s up to you whether or not you want to record a lien to enforce your loan.
I myself have lent a private note to a real estate investing couple in Ohio. They’ve paid me 10% interest every quarter like clockwork since 2019.
Word to the wise, however: only lend a private note to investors you know personally and trust implicitly. Don’t lend money to anyone — even someone you know well — if they don’t have a long history of success in real estate investing.
Don’t count on earning a 15-30% rate of return like you might with a real estate syndication, but you can still earn solid returns with a steady stream of income.
5. Fractional Ownership of Rental Properties
In today’s world, you can do things with the click of a button that were much, much harder even a decade ago. That’s the beauty of disruptive technology in real estate.
Case in point: investing platforms that offer fractional ownership in real estate. For $20–100, you can buy ownership shares in rental properties. You collect your portion of the cash flow, in the form of monthly or quarterly distributions, and most real estate investing benefits. When the property sells, you get your share of the profits.
In some cases, you don’t even need to wait for the property to sell. Some online platforms offer a built-in secondary market, where owners can buy and sell shares from each other. That means you can sell at any time (or at least after an initial 3–12 month holding period, to prevent share churning).
Check out Ark7 and Lofty as examples of fractional ownership platforms that offer liquidity and secondary markets. Also check out Arrived, the oldest and best known of these platforms, which doesn’t offer a secondary market yet but has built a great reputation. Several of these platforms offer short-term Airbnb rentals, not just traditional long-term rentals.
I have some money in fractional rentals on Ark7 and Arrived. But my favorite passive investment in real estate is syndications.
6. Fractional Ownership of Apartment Complexes
What’s better than fractional ownership in a single-family rental property?
An ownership share in a 200-unit apartment community.
You benefit from an economy of scale, better cash flow, accelerated real estate depreciation, and higher barriers to entry keeping returns high. Best of all, the greater unit count provides stability: a single vacancy or repair won’t scuttle your returns. The vacancy rate typically remains pretty constant, as do maintenance costs.
You buy fractional ownership in multifamily properties through real estate syndications. These private investments typically pay 15–30% returns, between cash flow distributions and profits upon sale. In some cases, the syndicator refinances the property rather than selling, returning your investment capital back to you even as you keep your ownership interest in the property. It’s one of earning infinite returns on your investment.
Plus, you get full real estate tax benefits.
“Uh, if these are so awesome, why isn’t everyone investing in them?”
Several reasons: To begin with, they’ve historically been word-of-mouth investments among the wealthy. Most people have never heard of real estate syndications.
But even those who have often can’t invest in them. Many are only available to wealthy accredited investors, and most require a minimum investment of $50–100K.
Unless you invest as part of a real estate investment club like ours, that is. Our Co-Investing Club members can invest as little as $5K in each deal, and we propose new deals once a month on average.
