Alternative Real Estate Income Opportunities

Within the real estate sector, investment options include real estate investment trusts (REITs), mortgage-backed securities (MBSs), mortgage investment corporations (MICs), and real estate investment groups (REIGs). They are generally regarded as vehicles for generating real estate income, but their methods of operation and entry differ.

REITs

A REITis formed when the owner of multiple commercial properties sells shares (often publicly traded) to investors (usually to fund the purchase of more properties) and then distributes the rental income. The REIT is the landlord for the tenants (who pay rent), but the REIT's owners record income after deducting the costs of operating the buildings and the REIT. A REIT is evaluated using a unique method.

REIGs, MBSs, and MICs

These are a step further removed because they invest in private mortgages rather than the underlying properties. Unlike MBSs, MICs hold entire mortgages and pass on the interest from payments to investors, rather than securitizing portions of principal and/or interest. Nonetheless, both are debt investments rather than real estate investments. REIGs are typically private investments with their own distinct structure that provide investors with equity investments or partnership servicing.

Other Real Estate Investment Options

An informal residential real estate option requires you to pay a fee, or premium, to have the right to buy a house for a specified period at an agreed-upon price. Then you find investors willing to pay more than your option price for the property. In this case, the premium is essentially a finder's fee for matching someone looking for an investment with someone looking to sell—similar to a real estate agent's commission. Although this is income, it is not derived from owning (i.e. holding the deed to) real estate.

 

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