Real Estate Investing Basics

Is Owning Property Really the Best Way to Make Money Investing in Real Estate?

Expertise: Business Management, Mortgages & Creative Financing, Landlording & Rental Properties, Real Estate Investing Basics, Personal Finance, Real Estate Deal Analysis & Advice, Commercial Real Estate, Personal Development, Real Estate News & Commentary
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aerial view of houses and culdesacs and tree-lined streets

It seems that many of us learn about the “American dream” of homeownership at a very early age, and for some, that dream can stick with us.

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When I was working in real estate sales and as a contractor, my ultimate goal was to own a LOT of real estate. The more, the merrier!

Not to be a Scrooge, but now I’m starting to question the premise that “owning more is better.” Is ownership really the only, or even the best, way to make money investing in real estate? Or are there better ways?

Related: When You Should and Shouldn’t Consider Rent-to-Own Investing

Control vs. Ownership

As I get older and hopefully wiser, I wonder if the best way to invest in real estate is always buying and holding properties, along with all the management and maintenance that comes with it. Or are there better ways to invest that are just as effective and efficient—with less risk? Is ownership really the dream we’re after—or is it more about control?

Today, I’m heading down the path of controlling more assets than I own. Especially as I’m approaching my retirement years, I’m always looking for better ways to simplify my life and my investing.

Here are some of ways you can mix up “pure” ownership with other ways of controlling deals.

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Trusts

Of course, some things make more sense to own outright, like shares of the business you run. But there are many things we can control without owning and still enjoy a lot of the benefits of without all the risks that could come along with ownership.

Take trusts, for example. Holding real estate inside a trust could be the perfect entity structure for an investor because “you” don’t own it (the trust does). And you’re not even the trustee or the beneficiary, yet you could still be the manager and control the bank accounts. In other words, the trust takes on the risks of ownership while you maintain the actual control over the assets owned by the trust.

As I’ve always said, “The best form of asset protection is not to own anything.”

Fractional Ownership

Another great way to invest in real estate without taking on too much risk is to only own part of the deal.

For example, you could have majority ownership (and control) but bring in a high income or high net worth partner to sign on the financing for your deal (e.g., apartments, mobile homes, student housing, etc.).

So, why would they be willing to do that? Well, if you found the deal, ran the value-add renovations, and were responsible for all the property management and maintenance, they may be more than happy to do their part by signing on the loan for a nice chunk of ownership with little to no work.

Another way that comes to mind is if you passively, usually for a preferred return with or without upside, invest in a company or fund that invests in real estate. Now, this can take many forms. Some fund investments have tax advantages (i.e., depreciation), like apartment funds, and some don't have many tax advantages, like note, tax lien, or hard money funds.

Even being a private money lender is a great way to indirectly invest in real estate, without a ton of work or risk, for that matter.

Related: 10 Real Estate Markets Where The “Buy and Hold” Strategy Actually Made Sense

Control Without Ownership

Other than managing a trust, the next big way to have control of real estate without ownership is through options. For example, doing a sandwich lease option is the epitome of being able to capitalize on a deal you don't even own.

Let’s say you find a property you can rent for $700/month with a $1,000 deposit for three to five years with the option to buy it for below asking price (i.e., sales price minus a commission, offering, say, $75,000 on an $80,000 asking price). Then, you can turn around and sell it on a rent-to-own lease option to a buyer/tenant for, say, $950/month with a $3,000 deposit with the option to purchase in two to three years for $95,000.

Make the seller handle any repairs over $300 and the new tenant/buyer fix anything up to $300, and you’d probably have a home run on your hands.

Downside of a deal like that? The worst-case scenario is that you’d return the property back to the seller at the end of the term.

Control With Ownership

That said, it is also possible to have control with ownership in a way where there is very little risk. A perfect example of this is buying a property "subject to" the mortgage. Because the loan on the property that you take over is not in your name, your risk is very limited.

Although the lender could call the loan, the biggest risk would be if you have a lot of money tied up in a renovation or if you couldn't liquidate the property quickly enough. If you have enough reserves or access to capital, this may not be a problem.

Time to Get Creative!

The list of strategies for controlling (and benefitting from) real estate without owning it outright goes on. Don’t just settle for what is commonly done or what you’re already familiar with.

What are some of your favorite strategies for mitigating or limiting risk while investing in real estate? Are you dreaming of ownership—or control?

Be sure to comment below!

Since 2007, Dave Van Horn has served as president and CEO of PPR Note Co., a $150MM+ company managing funds that buy, sell, and hold residential mortgages nat...
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    Danny Randazzo Apartment Syndicator from Charleston, SC
    Replied over 2 years ago
    Dave, Great post, I love the mindset to think outside the box and generate income while limiting risk. Have you tried any of the above strategies? If so, how has that experience been? I typically control real estate with ownership. Thank You, Danny Randazzo
    Dave Van Horn Fund Manager from Berwyn, PA
    Replied over 2 years ago
    Hi Danny, Of course! It hasn’t been perfect but it’s a great low cash out of pocket way to acquire property. I’ve also sold properties on lease options and only about 1/4 of the people actually end up buying these places after all is said and done. I’m not sure why that is but it certainly makes for a better tenant since there’s still a pride of ownership, so they take better care of the property, make improvements, etc. Best, Dave
    Bernie Neyer Investor from Chanute, Kansas
    Replied over 2 years ago
    I keep reading about investing in real estate and putting it on auto pilot, as if after buying it you don’t have to do much of anything. This simply is inaccurate. Even if you hire a manager you have to watch them AND the property. Hiring a manager is not a set and forget proposition. While you can change management, sometimes it is hard to extracate you from that management contract. On manager I was looking into had a contract that wouldn’t allow me to leave if a tenant they placed in the property was still there and then I could only leave on the anniversary of the contract, a once in a millinia alignment of the stars. If you truly want auto pilot real estate you should explore REITs. Your returns aren’t as great, but consistent year in and year out. The truth is though, most real estate Investors become some sort of lender eventually. The ROI is better than direct ownership and management time is extremely low. While there are risks, they are not as substantial as direct ownership.
    Dave Van Horn Fund Manager from Berwyn, PA
    Replied over 2 years ago
    Hi Bernie, I agree! And there’s a lot of ways to invest in real estate with varying degrees of management and headaches. It depends on the investor and their time availability, risk exposure, and desired return. REITs are one good example. So are notes. Storage garages are another. The good thing about Real Estate is it’s not limited to just rentals, the possibilities are really endless. Thanks for reading! Best, Dave
    Alex Craig Real Estate Professional from Memphis, TN
    Replied over 2 years ago
    Good thoughts for alternate strategies, but some of these lose the tax deduction which is such a huge perk of real estate investing., especially for full time investors.
    Roger Hefner from Yuma, Arizona
    Replied almost 2 years ago
    I do anything to control and own property . Notes..buy and hold, Subject to, Cash, but flips suck. It’s work I like to travel collect the cash. Enjoy people it’s out there if your a player in this business.
    Neil Blyther Investor from Staten Island, NY
    Replied 5 months ago
    Wow! As a new investor I never knew there are so many different creative ways to control/own Real Estate! Great article, appreciate your advice and experience.
    Cliff Priddy Rental Property Investor from Austin, TX
    Replied 5 months ago
    REITs work too!
    Fred Cannon Rental Property Investor from St Augustine, FL
    Replied 5 months ago
    Enjoyed the read. I am always interested in how people do real estate investing For me I am just a simple buy and hold, make 10% cash flow, hope for good appreciation, get mortgage pay down, and get some tax incentives. Ever so often I will put a Home on the market FSBO and lately ( last three years or so) I get these sandwich leases calling me. It all sounds good but seems to be a lot of uncertainty and all the risk is put onto the seller. If you google the companies making the offers the reviews are all over the spectrum. I think schemes carry risk and multi layer schemes carry lots of risk. I am just saying be a wise investor, if you don’t understand the process educate yourself and understand the risk involves. Taking risk is fine but make sure your have a way to mitigate the risk you take. Everyone has a unique approach to real estate investing, that’s what make BP so amazing. Read, learn, act. It’s all here.
    Riaan Knoetze
    Replied 5 months ago
    How does control without ownership increase net-worth? This is particularly relevant if you intend on leveraging net-worth to finance future deals.