Real estate is one of the most common assets people have, since owning your own house or apartment is the goal for many. Furthermore, books like “Rich Dad, Poor Dad” show you how to become wealthy through rental properties.
But if the thought of investing a lot of money into a single asset is not that appealing to you, then we’ll discuss 5 profitable alternative property investments in this article.
The drawback of traditional real estate investments
There are some drawbacks when investing in real estate in the conventional way, where you buy an apartment or house. These include:
- High initial capital requirement
- High fees for brokers, notaries, taxes, etc.
- Screening by a bank
The amount of money one needs to pay upfront for a house or apartment can often be five figures – sometimes six. In turn, this creates higher barriers to entry.
Buying a home generally also binds a big chunk of your net worth to that house – so you’re not only less flexible geographically, but also in terms of where you invest.
5 Alternative property investments with low capital requirements
There are alternative property investments where you can participate in the real estate market without needing significant amounts of money. Some include investing in shares of real estate companies, offering an apartment for rent, or getting into physical real estate on a smaller scale. With that in mind, let’s discuss five possible approaches you could take.
Tiny houses – Small scale, big potential
Tiny houses are incredibly popular around the western world. They are smaller versions of a home, where the size is a fraction of that of a typical house – for example, 25 square meters. Some of them are built on a trailer, so the tiny house on wheels can be moved to another location if the owners wish.
Other times they are stationary and a bit larger. Their benefit is that they can usually be built for mid-five figures, so the initial outlay is way less. You can then choose to live in them yourself and save rent, or sell them to individuals looking for a tiny home.
Pros and Cons of Tiny houses
- Small capital requirement
- Can be built on a trailer to be mobile
- Very trendy way of living
- For yourself or to sell
- Capital investment is still five figures
- Small living space if you decide to live there yourself
- Often still comes with the taxes etc. when selling houses
Real estate ETFs
With a real estate ETF (exchange-traded fund), you can buy shares in a fund that invests in real estate companies. As they are traded on an exchange, they are very liquid and can be bought and sold easily. In addition, it’s possible to start with as little as 50 EUR.
If you think the real estate sector will develop well, this is one way to gain exposure.
Pros and Cons of real estate ETFs
- Low barrier to entry
- Highly liquid
- Invest in a wide variety of real estate companies
- Stock can rise and fall
- Not your own properties
Airbnb – A student property investment
You’ve probably heard of Airbnb, the platform where people can sublet their apartment or spare rooms. This platform is increasingly popular, with 14,000 hosts joining each month in 2022. While it’s a good student property investment to rent out your room, you’re not bound to only renting out your own apartment.
One avenue that many Superhosts take, which are people who have repeatedly gotten excellent ratings on Airbnb, is to purchase apartments just to list them on the platform. They get them furnished, sometimes with a specific theme, get photos taken, and then put them on Airbnb for others to rent.
Pros and Cons of Airbnb
- Start with your own apartment and no investment
- Potentially high returns if you’re in a good location
- Very popular way to book accommodation
- Not legal everywhere
- Being a host is time-consuming
- Renting and furnishing an apartment can be costly
Real estate-backed P2P loans
Another alternative to the options mentioned above is real estate-backed P2P loans. On a platform like Lendermarket, a loan originator such as Credory offers loans they have issued to companies that are backed by their real estate.
This means that if the company defaults and cannot make repayments, then Credory would have the real estate as collateral. This adds a layer of security to this form of investment. Loans on Lendermarket are also offered with a buyback guarantee so that if a loan goes into a default period, you will receive your money plus outstanding interest back.
Pros and Cons of real estate-backed P2P loans
- Very accessible
- Start with as little as 10 EUR
- Real estate as collateral for issued loans
- Bound by interest rates of 7-9%
- Not directly taking part in the real estate market
Garages and parking spaces
Finally, you can also make money by offering people a space to store their things and park their cars. Especially in densely populated areas, where parking spaces and garages are hard to come by, this can be a profitable approach.
You could build these garages yourself, but sometimes you can also get lucky and buy them off the old owner. Depending on the location, they might net you anywhere from 20 EUR to over 60 EUR per month, while allowing for low maintenance and buying costs.
Pros and Cons of investing in garages
- Small but steady income stream
- Available for a low price
- Low maintenance costs
- Space or garages are sometimes hard to find
- If you build them yourself, it requires lots of capital
Pros and Cons of each real estate alternative
|Potential returns||Liquidity||Capital requirements|
|Tiny Houses||Medium to High||Illiquid||Medium|
|Real Estate ETFs||Medium||Highly liquid||Very low|
|Airbnb Rental||High||Illiquid||Very low – Medium|
|Real estate-backed P2P loans||Medium||Illiquid (unless in the secondary market)||Very Low|
|Garages and parking space||Small but Steady||Illiquid||Low – Medium|
If you want to get into real estate, you don’t always need to buy a house. Various alternative real estate investments can help you get your foot in the door and participate in this market. Some require almost no capital, like renting out your own apartment on Airbnb, whereas others have higher initial investments.
Ultimately it depends on how much money you have available and what you are looking for. If you want to start with a small amount of money and benefit from the security of a BuyBack Guarantee, then real estate-backed P2P loans could be an avenue worth exploring