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Three Alternative Ways To Invest In The Rental Real Estate Market


Cindy Diffenderfer is the CEO of Orion Haus, a leader in the home sharing industry – turning everyday renters into real estate investors.

There’s a tremendous cultural shift happening to the way we live and work. Factors like low housing inventory, the pandemic, the “Great Resignation” and the increase in remote work options have led to a surge in demand for rental housing.

Economic data from the Federal Reserve revealed that the average price of a house in the United States in the fourth quarter of 2021 was $477,900. Making the traditional 20% down payment on a house at that price would require a $95,580 outlay.

As the CEO and cofounder of OrionHaus, a nationwide collection of home-sharing friendly apartment buildings, I know that investing in rental properties isn’t just for those with significant liquidity to make a down payment or buy a property outright. There are alternatives available that can help investors get up to 100% financing, specifically to purchase an investment property. These alternative lending opportunities and types of financing mean that you may be able to invest in multiple properties at once without a traditional mortgage or paying in cash in full. Here are several options to consider.

1. Bridge Loans

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With a bridge loan, you’re entering a loan agreement to help “bridge” the gap between selling one property to buy another. But, there are twists on the traditional bridge loan, too, aimed at multi-property investors. One such vehicle is a cross-collateralization loan, where you use the equity on an existing investment property as collateral instead of cash. This can potentially allow you to maximize your existing equity to add to your property portfolio. Credit unions are among the most common lenders offering cross-collateralization loans, but some banks and fintech lenders may offer this option as well.

It’s also important to be aware of risks. With a bridge loan, it’s always possible that funding will fall through on the property you’re selling so that you won’t receive the money to pay back the bridge loan or buy the property you wanted.

2. Crowdfunding Platforms

Investing in real estate used to be limited to high net worth individuals who met the requirements to be an accredited investor. To be an accredited investor requires $1 million in net worth or wages of over $200,000 a year for a minimum of the past two years. But with the passage of the Jumpstart Our Business Startups (JOBS) Act in 2012 came the development of crowdfunding options for those who don’t meet that criteria. Companies like Fundrise, RealtyMogul and Streitwise have become popular, offering options for both accredited and non-accredited investors to pool their money in a real estate investment with others and creating a more streamlined and accessible way to gain entry into the real estate investing market.

Although many of these platforms have only been in existence for a decade or less, they’ve proven to attract thousands seeking to diversify their holdings. Fundrise, for example, says in their 2021 Year In Review infographic that they had 1.2 million users from all 50 U.S. states.

That said, remember that crowdfunding is an investment, and like any investment, there are no guarantees that you’ll make money or even break even on what you put in.

3. Fractional Ownership

Fractional ownership is another lower-cost option for real estate investing. With this type of investment, you’re purchasing the right to a slice of a real estate title to be shared equally with a minimal number of other fractional owners, typically between six and 14 parties per unit. With fractional ownership, you and the other co-owners share equally any gains or losses in the value of the property.

This arrangement can be appealing to those who want to invest in a property that they can occasionally use since the portion of the property you own is yours to use as you wish. For example, if your fractional share is one-sixth of a property, you reserve the right to use the property one-sixth of the year, or two months. More companies are starting to focus on fractional ownership, like Pacaso and Kocomo, which offer platforms for fractional ownership investors with a focus on the luxury vacation market, while Sharetini focuses on metropolitan areas.

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When considering fractional ownership, know that this option can be risky in that there are no guarantees that you will be able to use your share of the property or rent it out to cover your expenses.

With the demand for flexible work and lifestyles at an all-time high, investing in rental properties is more appealing than ever. And the new breed of investment property financing can put real estate investing within reach for all types of investors.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.


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