How to Cash In On Real Estate (Without Owning Property)

Have you ever dreamt of owning a castle in the French countryside? Well, if you pooled your money with 11,499 other people, you could probably make it happen.

That's exactly what happened with the Chateau de la Mothe-Chandeniers, a 13th-century castle in France. Thousands of people on the internet combined their buying power to save the castle from being destroyed and preserve it as a historical monument. 

Having over 10,000 roommates might seem like a lot, but they don’t actually live there. Instead, they own shares in the castle and get to have a say in how it’s preserved.

This is essentially how real estate investment trusts (REITs) work, except you get more than just your name on a plaque in a medieval courtyard: You get a paycheck. 

Thanks to REITs, it's possible to join thousands of other investors, buy property, and earn real estate money all from your smartphone. Here's the tea.

The short and jargony answer: A REIT is a company that invests in property on behalf of a pool of investors. You can invest in a REIT like you'd invest in stocks. The company manages the property, from leasing to maintenance, so you don't have to do any of the heavy lifting. They profit off of rental income and property sales, and you get a portion of that profit in the form of dividend payments.

The step-by-step: 

• A bunch of investors put money together and give it to a company. 
• The company takes the money and buys some property. This can include commercial property like offices or shopping centers, or apartments and condos. 
• The property is leased to a tenant or tenants to earn rental income, or it's improved and then sold at a higher price. 
• The rent or sale money is distributed to the original pool of investors, but the company takes a cut for managing the whole process.

REITs are one of the easiest ways to branch into real estate, especially if you don't have a lot of time and cash to spare. With REITs you can own or finance real estate the same way you would buy shares of a company on the stock market. In fact, many REITs are publicly traded on the stock market.

You won’t own the whole house or commercial property. Instead, you’ll own a percentage of the trust based on the amount that you put in.

And unlike owning a house outright, when you invest in REITs, you don’t actually have to do any maintenance. No mowing the lawn, dealing with a broken water pipe at 5 a.m., or having to remember to clean the oven every three months. And if you get tired of all that passive money you can quickly sell it, unlike owning a house, which takes a lot of time to sell.

Thanks to laws established by Congress, REITs have to abide by a number of rules. 

• At least 75% of the company has to make money through real estate, whether that’s rent, interest, or from selling property. 
• 90% of the REIT income has to be given to investors in the form of annual dividends.

That second point is key. Dividend payments are simply a company cutting you a check from their profits as a reward for your investing with them, and they're one of the best ways to generate passive income.

In addition to these (often monthly) dividend payments, you also have the value of your shares, which should go up over time. The idea is that when you eventually decide to sell, you'll have a lot more money than what you started with thanks to increases in property value. If you get the average 10% return, for example, you'll double your money in just 7 years.

There are a lot of different ways to invest in REITs, just like there are various types of REITs. Some REITs are focused on residential areas, like apartments. Others invest in offices or retail areas like malls, while some REITs buy mortgages as opposed to real estate. So instead of the bank owning the mortgage, the REIT owns it. 

In general, you can buy publicly traded REITs through a stockbroker. Or you can invest directly with a private REIT, meaning it’s not traded on the stock market. As with everything, there's an app for that.

Concreit is an easy-to-use investing app that lets you buy shares of private REIT for just $1. You'll get steady monthly dividends that you can cash out or reinvest. This REIT is focused on commercial real estate and makes it easy to access your funds when you need them.

With target returns of 9% to 12%, Fundrise lets you invest in institutional real estate for just $10. Best of all, they charge only 1% in annual fees, meaning more money in your pocket when they distribute their quarterly dividends.

If you like the idea of a possible 8% annual dividend yield, which is way higher than the stock market's typical 2% to 3%, Streitwise is worth checking out. You'll need $5,000 to get started. The REIT invests primarily in rental real estate, so you'll get paid on a quarterly basis.

The biggest drawback of REITs is that the value of your shares won’t rise very much, like the shares of a big company like Apple might. But that’s mostly because the money the REITs earn is given back to investors in the form of high dividends.

Ideally, you want money in both real estate and the stock market. This will help you balance your portfolio and protect your wealth against a market crash and a housing bubble. Plus, it'll earn you some passive income—and there's no better feeling than getting paid in your sleep.