If you're thinking about hopping into the real estate market -- especially if you want to use it as an escape hatch from the corporate grind -- you may wonder whether you'll be signing up for a full-time job. Depending where and how you invest, real estate investors can spend as little as a few minutes a day or more than 40 hours a week. Before you hop into the market, here's how much of your time each approach to real estate investing might demand.
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The least time-consuming ways to invest in real estate
REITS
REITS (real estate investment trusts) allow everyday working professionals to put their money into real estate without actually owning an investment property.
REITs own or manage income-producing real estate assets. Those holdings can include office buildings, apartment buildings, warehouses, hospitals, shopping malls, self-storage, hotels, or loans and mortgages. REITs have to distribute 90% of their taxable income to investors each year, which means successful investments here could offer you regular annual income.
If you're interested in investing in REITS, you can purchase both traded and non-traded REITS through a broker or financial institution. The few minutes out of your day this might take could really pay off in the future.
While all REITS are not built the same, the National Association of Real Estate Investment Trusts suggests you can expect an average dividend payout of 2.8% annually. That's slightly higher than the S&P 500's average long-term dividend yield of 1.86%.
Real estate syndication
Real estate syndication is another way to tap into the property market without a major time commitment. Here, you'll pool your money together with other investors to acquire the property with the help of a syndicator. To participate in this investment strategy, you must be an accredited investor or a non-accredited sophisticated investor.
As an investor, you can let the syndicator worry about the ins and outs of the acquisition process; you just contribute your portion of the capital, then sit back and -- if all goes well -- reap the rewards of your income distribution.
Investors or limited partners (as they are referred to in the syndicate world) are typically paid preferred returns, meaning they get more of the profits sooner than the general partners who are actually running the investments. The typical preferred return from a syndicate is between 6% and 8% for investors; any gain above that preferred rate gets split between the investors and the syndicator.
The distribution arrangement is pretty attractive, but it's not a guaranteed payment, and it does come with some risk. If a property fails to pan out, you could lose the capital you invest. And if it doesn't produce enough cash flow, you might not actually receive the projected returns.
Crowdfunding
In the real estate market, crowdfunding allows you to pool your money together online with other real estate investors to purchase a property -- syndication on a bigger scale. Although this method comes with some risk, it is a great strategy to use if you are an unaccredited investor and lack tons of money to contribute. Some online platforms will even allow you to invest as little as $500. But before you buy in, know your limits.
The U.S. Securities and Exchange Commission (SEC) puts income limits on these investments to keep people with less cash from losing their shirts. If your annual income or net worth is less than $107,000, you are limited to a crowdfunding investment of the greater of either $2,200, or 5% of your annual income or net worth -- whichever's less -- during any 12-month period. But if your annual income and net worth equal or exceed $107,000, you can invest up to 10% of annual income or net worth, whichever is lesser (not to exceed $107,000) during any 12-month period.
Do your due diligence before you buy in. Crowdfunding sites often charge up-front fees, and investors can lose all or part of the money they invest. But that risk can also bring commensurate rewards. Research each platform to see its long-term results and internal rate of return. Crowdstreet, for example, estimates that over the long term, each dollar invested has earned 19% annually.
While investing in a crowdfunding site may only take minutes, finding the right site among hundreds of platforms can take more time. When you're sizing up your options, consider the quality of the projects, whether there are fees involved, whether the firm provides financial statements, the expected rate of return, and your risk tolerance.
If you're interested in crowdfunding, start your search with the most prominent and established platforms like Streitwise, Realty Mogul, CrowdStreet, School of Whales, and Fundrise.
The most demanding approaches to real estate investing
Wholesaling
Investors typically go into wholesaling to hop into the market before buying their first property. But depending on the size of the portfolio and your local licensing requirements, real estate wholesaling can also become a full-time job.
Investors who wholesale will spend their time networking with real estate professionals in their area, creating mailers, finding distressed property, finding buyers, putting properties under contract for sale, negotiating deals, and working with appraisers and title companies.
Self-managing with a rental property
Managing rental properties you own can consume a surprising amount of your time. On any given day, you'll have to contend with routine maintenance, collecting rent, filling vacancies, tenant screening, and a host of other potential tenant issues. Despite that effort, this strategy is quite popular among landlords. According to the 2018 Rental Housing Finance Survey, 42% of rental properties are managed by their owners.
Self-managing can let you enjoy a regular income even as your property's value rises. According to the National Bureau of Economic Research, the average nationwide total returns are approximately 8.5% annually for single-family rentals in U.S. cities.
Fix-and-flip projects
Depending on the portfolio size, flipping houses can also become a full-time job. Flippers can find themselves fully engrossed in completing market analysis, purchasing properties, working with contractors and designers, and completing renovations.
In addition to these tasks, investors will likely have to wait a while to sell the property and be rewarded for their efforts. According to ATTOM Data solutions, it took flippers who sold properties 159 days on average to complete the transaction in the first quarter of 2021. Not having immediate access to cash to start the next project right away or pay for daily expenses could be devastating for some investors.
But just like self-managing properties, the time and effort you put in here could yield significant rewards. According to ATTOM Data solutions, in the first quarter of 2021, investors earned on average $63,500 in from their fix-and-flip projects -- an overall 37.8% return on investment.
Whatever strategy you use will require a whole lot of patience. You may need to put in as little as a few minutes a day or full-time hours to meet your goals. Be ready for that before you get started.
