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How to Invest in Real Estate Without Being a Landlord

Byline profile imageEdited by Arturo Conde, CEPF®
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Byline profile imageEdited by Marie White, CEPF®
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If you’re wondering how to invest in real estate without being a landlord there are several options for you to consider. These can include real estate investment trusts (REITs), crowdfunding, and rental property syndications, among other strategies. Choose wisely, as savvy real estate investments can build your passive income and increase your wealth and liquidity. Here are 10 common strategies that you could consider.  

A financial advisor can provide analysis and insights on how best to manage your real estate portfolio investments.

Real Estate Investment Trusts (REITs)

Real Estate Investment Trusts (REITs) offer a way for individuals to invest in large-scale, income-producing real estate without having to buy or manage the properties themselves. REITs are traded just like stocks, making them a highly liquid investment. They often focus on specific types of properties, such as commercial real estate, apartment complexes, or healthcare facilities. Investors can benefit from the regular income generated by the properties, distributed as REIT dividends, and from potential appreciation in the value of the REIT’s shares.

Real Estate Crowdfunding

Real estate crowdfunding enables groups of investors to participate in larger projects that would typically be out of reach for individuals like residential developments or commercial properties. The returns can come in the form of rental income, interest, or profit-sharing.

Real Estate Mutual Funds

Real estate mutual funds invest in a diversified portfolio of real estate-related assets like REITs, real estate development companies, and property-related stocks. This provides a few benefits. First, it spreads risk across different asset types and markets. You also have professional management overseeing the fund’s assets. Investors gain exposure to the real estate market with the added benefit of diversification and liquidity, as these funds can be bought and sold like any other mutual fund.

Hire a Property Manager

Hiring a property management company to oversee your rental property lets you collect rental income without worrying about maintenance or tenant issues. These companies handle everything from marketing and tenant screening to rent collection and repairs, typically charging a fee based on a percentage of the monthly rent. While there’s a cost involved – and you’ll still technically be a landlord – the convenience and professional management can make it a worthwhile investment, especially when you take advantage of rental property tax deductions. 

Real Estate ETFs

Real estate exchange-traded funds (ETFs) are traded on stock exchanges like individual stocks. They typically track the performance of a specific real estate index, offering investors exposure to a broad range of real estate assets. One of the advantages of ETFs is their liquidity, as they can be bought and sold throughout the trading day at market prices. Investors in real estate ETFs also benefit from diversification and good expense ratios compared to mutual funds.

Private Real Estate Funds

Private real estate funds pool money from accredited investors to invest in real estate assets. Unlike public REITs, these funds are not traded on public exchanges, but offer the potential for higher returns along with higher risks and lower liquidity. These funds often have lock-up periods during which investors cannot withdraw their capital.

Real Estate Notes

Real estate notes are debt secured by real estate. Essentially, you are investing in a mortgage or a loan tied to a property. As the borrower repays the loan, you receive interest payments. Real estate notes can offer attractive returns,but come with risks, such as the possibility of default.

Real Estate Syndications

Real estate syndications involve a sponsor or syndicator handling the property acquisition, financing, and management, while a group of investors provide the capital. Investors in real estate syndications typically receive returns through rental income or when the property is sold. Syndications require careful consideration of the syndicator’s experience and the specific terms of the investment.

Hard Money Lending

These are short-term loans to real estate investors for the purpose of property renovation or development. These loans are often used by developers who need quick access to capital. Hard money lenders can earn high-interest rates, making it an attractive option for investors seeking strong returns. However, hard money lending carries risks for borrower default and the illiquid nature of the investment. 

Turnkey Properties

Turnkey properties are fully renovated homes or apartments managed by a third-party company that handles all aspects of property management This option is particularly appealing for out-of-state investors or those looking for a passive investment.

Pros and Cons of Passive Real Estate Investing

Investors meeting with a financial advisor to discuss investing in real estate ETFs.

While this approach can offer attractive income and diversification, it may not be the right fit for every investor. Here are some key points to consider.

Pros:

  • Passive income: Most passive real estate investments, such as REITs and syndications, offer regular income through dividends or profit-sharing without the day-to-day responsibilities of managing a property.
  • Diversification: Real estate can help balance your investment portfolio by adding an asset class that behaves differently from stocks and bonds.
  • Reduced hands-on involvement: You don’t need to deal with tenants, maintenance, or lease agreements—professionals manage these aspects on your behalf.
  • Access to larger projects: Vehicles like crowdfunding and syndications allow individual investors to participate in projects they couldn’t fund alone.

Cons:

  • Limited control: Passive investors often have no say in how properties are managed, financed, or sold.
  • Liquidity restrictions: Many options, such as private REITs or syndications, may lock up your money for years.
  • Fees: Management, acquisition, and performance fees can eat into returns and vary widely between platforms and structures.
  • Market risk: Just like with any investment, property values and rental income can fluctuate with economic conditions.

Tax Implications of Passive Real Estate Investments

Understanding how passive real estate investments are taxed is essential for making informed decisions and maximizing returns. Each investment structure has its own tax treatment.

  • REITs: Dividends from Real Estate Investment Trusts are typically taxed as ordinary income, which may be higher than the long-term capital gains rate. Some REIT distributions may also qualify for the 20% qualified business income deduction under Section 199A.
  • Syndications and turnkey properties: These typically offer pass-through tax benefits, including depreciation. Depreciation can reduce your taxable income on paper, even if you’re receiving positive cash flow. Some investors can also benefit from cost segregation studies to accelerate depreciation.
  • 1031 exchanges: If you own real property directly, a 1031 exchange allows you to defer capital gains taxes by reinvesting proceeds from the sale into a “like-kind” property. This strategy is typically not available through REITs or crowdfunding platforms.
  • Opportunity Zones: Certain funds invest in government-designated Opportunity Zones, offering tax deferral or even forgiveness on capital gains if you hold the investment for a required period (generally 5 to 10 years).

Tax treatment can vary based on your income, filing status, and investment structure. Consider speaking with a tax professional to better understand the implications for your specific situation.

Bottom Line

Real estate investors reviewing their portfolio.

To invest in real estate without being a landlord, decide if you prefer pooled investments like crowdfunding or syndication, or a fund such as a REIT. Pooled investments involve multiple investors sharing ownership, while REITs are publicly traded funds that own real estate. Consulting a financial advisor can help clarify your risk tolerance, long-term goals and investment strategy.

Tips for Real Estate Investing 

  • A financial advisor can work with you to identify real estate investment opportunities. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • If you want to know how much an investment could grow over time, SmartAsset’s investment calculator could help you get an estimate.

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