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New Investing Opportunities Promise Profits

New Investing Opportunities Promise Profits

Want to get started making money from rental real estate – but hate the thought of being a landlord? There just may be a solution for that – if you don’t mind putting the fate of your investments into the hands of others.

Even though the US housing market is still struggling ‘to fully recover from the catastrophic collapse of a few years ago, income property remains the nation’s most secure and tax favored asset. And the number of single-family homes occupied by renters surged between the wears of 2004 and 2013 from 10 million to nearly fifteen million.

That represents a jump n rental income available for anyone willing to take the plunge. It’s a good time to invest. And the best strategy, as Jason Hartman says, is direct investment: managing your own investments without the intervention of middlemen or women who might be greedy, unscrupulous or incompetent. Or all three.

Despite all that, a number of would be investors are reluctant to launch an income property investing enterprise because that means becoming a landlord – a time consuming and often thankless job that requires a hands on presence and willingness to deal with a range of tenant issues.

Avoiding the day-to-day trials of owning rental property usually means paying someone else to take on those duties, such as a property manager or management company. And while that may seem appealing, it involves regular fees and the risk of putting your investments into someone else’s hands – especially if the houses you own aren’t in your local areas.

Trusts: Passive Investing?

But according to a recent Wall Street Journal article, new investing models claim to give potential property investors a way out of that problem. Innovations like investing trusts and crowdfunding sites claim to encourage investment by offering would be investors a way to reap profits from rental property without the need to be a hands on landlord.

Leading the new wave of investment alternatives: the publicly traded trust. This is an investment model that allows potential investors to buy up shares in the trust, which collects rental income from properties it owns. In theory, those rents are returned to the trusts’ shareholders as income.

Investors can buy into the trust for as much as the price of a property itself, or as little as single share of stock. The trust collects the rents from all the properties it owns, and returns the income to the trusts’ shareholders – and if all works properly, those shareholders don’t have to do a thing except collect their checks.

Investing Consortiums and Groups

Other options include investor consortiums that ask each participant to put up a share of money to purchase properties that generate an income snared by al members of the group. Though that option still gives potential investors the chance to earn income from rental property while leaving the actual management to someone else, usually a management firm retained by the investment group, it still places the investor at risk if the company falters, too many investors opt to leave, or the properties held by the group end up going vacant or being sold for a loss.

But there are risks involved. Trusts and similar investment groups don’t depend directly on the fluctuation of home prices, which can be the downfall of the house flipper hoping to get rich fast. But if major economic shifts mean that tenants don’t keep up with their rent payments, or homes owned by the trust stay vacant for long periods, an investor could lose big.

Of course, those are risks independent investors face, too. But investors hoping to see long term passive income from this kind of arrangement could get burned if the company closes down or is forced to sell some or all of its income generating properties at a loss.

Placing investment money into the pool of a trust company or other investment group may seem like a smart choice for creating long-term income from rental real estate. But an investor who chooses this option still surrenders control of investing decisions and loses the flexibility of handling income properties individually.

Crowdfunding Opens the Marketplace

The real new kid on the block in terms of acquiring and dealing with income property is crpwdfimdimg – a plan in which investors match up with lenders and other kinds of resources for finding the funding to buy and repair investment properties. Though crowdfunding doesn’t affect the day-to-day management of properties, this strategy for getting started with investing puts the hopeful investor in contact with a variety of entities capable of offering funding and support.

Putting money – and trust – into investing groups may seem like a win win situation. Investors can reap profits from a variety of properties far beyond their local area – and they never have to see, much less deal with, those properties. But landlord avoidant investors who choose this kind or route can still find themselves at the mercy of the group’s decisions and facing losses due to the company’s problems.

As Jason Hartman puts it in his 10 Commandments of Successful Investing, “Thou shalt take control’ of investments. That’s the surest way to keep your money – and your long term investing success – firmly in your own hands.  (Featured Image: Flickr/Wonderland)

Source:
Andriotis, Annamaria. “New Ways to Profit From Renting Out Single Family Homes.” Weekend Investor. The Wall Street Journal Online. online.wsj.com. 19 Sept 2014

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