Alternative ways to invest in real estate

Looking to invest in real estate but don’t have a big savings pot to put towards your purchase?

Luckily, there are a number of other ways to invest in real estate that will give you a slice of the property pie without draining you financially.

The 4 property investment alternatives

Property schemes

A property scheme is where you buy a stake or ‘unit’ in an investment run by a professional manager - you don’t own the property directly. Other investors also buy units in the property scheme. From there, you may receive regular income (distributions) plus a slice of any profits made when the property sells. Property schemes invest in commercial buildings such as major office blocks, retail, or industrial assets.

In this type of real estate investing, the manager selects, buys, and maintains the investment property.

Generally, there are two types of property schemes: listed and unlisted.

Listed - Real Estate Investment Funds

Listed property schemes, or otherwise known as Real Estate Investment Funds (REITs), are a popular way to invest in property without a large financial outlay.

They work by pooling investors' capital together to buy real estate on your behalf. They offer exposure to a diverse portfolio of assets.

Property schemes listed on a public market such as the ASX are:

• Easier to value e.g. you can see what each unit is worth whenever you like
• Easier to sell if you no longer want the investment
• Subject to the share-market

Unlisted

With an unlisted property scheme, it is not visible on the public market list. Essentially, it’s much harder to easily know what’s going on with your investment. This means:

• You can’t see whether your investment value is trending up or down
• Unlisted property schemes are not subject to ongoing supervision by a market supervisor e.g. ASX
• It can be harder to get out of an unlisted property scheme when you want
• If you are allowed to withdraw money early, it may be subject to strict conditions and fees

Rentvesting

Rentvesting has become an increasingly popular home-owning strategy which sees buyers rent a property where they want to live (ideal location/features) whilst buying an investment property in an affordable suburb.

For example, if your dream home is a four-bedroom home situated 5km from the CBD, the prices can be quite high which means you may not be able to afford it. So instead, you would rent this property out to live in and buy an investment property that’s more affordable - in your budget.

When deciding whether to rentvest, you need to be confident your cash flow can manage paying rent as well as loan repayments if you were to ever face periods of vacancy or unexpected bills for repairs/maintenance.

Co-purchasing an investment property

Co-purchasing is another way to invest in real estate.

If you’re unable to invest on your own, you may decide to team up with another investor to boost your buying power and enter the property market much sooner than you’d otherwise be able to on your own. It’s also an opportunity to split the property’s ongoing costs across the owners.

However, with this type of real estate investing, there are a number of details to confirm amongst the parties. For instance, will you enter a joint tenancy agreement or tenants in common? These two choices can make a big difference should any complications arrive.

With a joint tenancy, you act as a single entity and are wholly responsible for the property together. If you buy the property together, you sell the property together. So, if one joint tenant wanted to sell and the other didn’t, you would have to go to court to force a sale of the property.

On the other hand, being tenants in common means each party has a proportionate share in the property (e.g. 60:40). So, if one tenant decided to sell their share, the other person may end up owning and possibly living in the property with someone they would otherwise choose not to.

Consider obtaining legal and financial advice before entering into this type of financial commitment. A co-ownership agreement that outlines all the details can be beneficial in this circumstance.

Fractional investing

Fractional investing allows investors to put away small amounts of money or a share in a property, typically referred to as a unit.

Generally, this is utilised by investors as a means to place one foot on the property ladder without having to save up for a house deposit. Instead of spending $700,000, you can spend $7,000 and your ownership is proportionate to what you invest. Essentially, you receive a ‘fraction’ of the rental income and a ‘fraction’ of the capital growth.

In Australia, there are a small number of platforms that facilitate fractional investing such as ticX, Bricklet, Domacom, and BrickX.

While this type of investing is more affordable, it’s still important to do your own due diligence before hoping on the bandwagon.

While there are plenty of alternative real estate investing options out there, the most common would be buying a residential investment property and renting it out. With this option, there are a number of pros including:

• Tax benefits e.g. negative gearing and/or depreciation
• Potential capital growth
• Relatively stable income through rent

So, if you’re ready to purchase an investment property, talk to one of loans.com.au’s friendly lending specialists to discuss our low rate investment loan options.