{"id":181474,"date":"2025-03-06T08:23:32","date_gmt":"2025-03-06T15:23:32","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=181474"},"modified":"2025-03-06T08:24:24","modified_gmt":"2025-03-06T15:24:24","slug":"7-ways-to-invest-your-tax-refund-in-real-estate","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/7-ways-to-invest-your-tax-refund-in-real-estate","title":{"rendered":"Did You Get a Tax Refund? Here Are 7 Ways to Invest It In Real Estate"},"content":{"rendered":"\n

Unfortunately, many Americans blow their tax refunds on instant gratification: new gadgets, <\/span>new<\/span> clothes, and maybe even a flashier car. Spoiler alert: You\u2019re making yourself poorer, not richer. <\/span><\/p>\n\n\n\n

Instead, consider investing your tax refund in unfamiliar real estate investments to experiment and find the perfect investing strategy <\/span>for you<\/span>. <\/span><\/p>\n\n\n\n

Try these hands-off real estate investments that require just $500 to $5,000, rather than the $50,000+ you\u2019d need to buy a rental property or invest in private equity real estate by yourself. <\/span><\/p>\n\n\n\n

1. Public REITs<\/span><\/h2>\n\n\n\n

Minimum investment:<\/span><\/strong> $20-$100<\/span><\/p>\n\n\n\n

Typical returns:<\/span><\/strong> 8-11%<\/span><\/p>\n\n\n\n

You\u2019ve probably heard of real estate investment trusts (REITs). They come with their <\/span>own<\/span> pros and cons, just like all investments.<\/span><\/p>\n\n\n\n

On the plus side<\/span>, you can buy single shares for $20-$<\/span>100,<\/span> using your regular brokerage account or IRA. You can sell those shares at any time, for full liquidity. And they tend to come with high dividend yields. <\/span><\/p>\n\n\n\n

They also come with their share of downsides. For instance, the dark side of liquidity is volatility: Any asset that you can buy and sell instantly (stocks, ETFs, cryptocurrencies) will inherently bounce all over the <\/span>place in price<\/span>. <\/span><\/p>\n\n\n\n

But even worse than that, publicly traded <\/span>REITs share a disturbingly high correlation<\/span><\/a> with the stock market at large. <\/span>This<\/span> defeats the entire purpose of diversifying your portfolio to include real estate. <\/span><\/p>\n\n\n\n

2. Private REITs<\/span><\/h2>\n\n\n\n

Minimum investment:<\/span><\/strong> $10-$1,000<\/span><\/p>\n\n\n\n

Typical returns: <\/span><\/strong>5-9%<\/span><\/p>\n\n\n\n

Alternatively, you can invest in private REITs, such as those offered by Fundrise and <\/span>Streitwise<\/span>. They don\u2019t have the volatility problem or the correlation with the stock market\u2014because they have so little liquidity. <\/span>You have to <\/span>leave<\/span> your money locked up for years <\/span>on end<\/span> if you don\u2019t want to get hit with nasty penalties.<\/span> <\/span><\/p>\n\n\n\n

I could live with that lack of liquidity if these investments <\/span>actually<\/span> paid strong returns. And they had, for a <\/span>little<\/span> while (like the years leading up to 2022). But they <\/span>just<\/span> haven\u2019t performed very well compared to other real estate investments such as public REITs, privately owned properties, or private equity real estate. <\/span><\/p>\n\n\n\n

In 2022, <\/span>Fundrise delivered<\/span><\/a> an average annual return of 1.50%. In 2023, it lost investors money at -7.45%, and in 2024 delivered 5.75% annualized returns. Pardon me if I don\u2019t shoot off all the confetti at once.  <\/span><\/p>\n\n\n\n

For full disclosure, I no longer invest in REITs at all. But I wanted to include them as options <\/span>on the list<\/span> if you weren\u2019t familiar with them. <\/span><\/p>\n\n\n\n

So, what <\/span>do <\/span><\/em>I invest in?<\/span><\/p>\n\n\n\n

3. Real Estate Secured Debt<\/span><\/h2>\n\n\n\n

Minimum investment: <\/span><\/strong>$100-$5,000<\/span><\/p>\n\n\n\n

Typical returns:<\/span><\/strong> 6%-10%<\/span><\/p>\n\n\n\n

You have plenty of options to invest in debts secured by real property. <\/span><\/p>\n\n\n\n

The easiest way to get started is through platforms like Groundfloor. It issues hard money loans and funds them through investors like you and me. Groundfloor lets you pick and choose individual loans to fund, or you can invest in their Flywheel Portfolio, which includes many loans. <\/span>Or you can lend money directly to Groundfloor<\/span>, albeit<\/span> at a lower interest rate.<\/span> <\/span><\/p>\n\n\n\n

Alternatively, you can invest in real estate debt funds. For example, 7e Investments offers a non-performing note fund that pays 8%-10% like clockwork. Expect a higher minimum investment, however, in this case $5,000. <\/span><\/p>\n\n\n\n

4. Fractional Ownership in Rental Properties<\/span><\/h2>\n\n\n\n

Minimum investment:<\/span><\/strong> $100<\/span><\/p>\n\n\n\n

Typical returns: <\/span><\/strong>5%-8%<\/span><\/p>\n\n\n\n

Platforms like Arrived and Ark7 let you buy fractional shares of single-family rental properties. That includes both traditional long-term rentals and short-term vacation rentals.  <\/span><\/p>\n\n\n\n

As a partial owner, you enjoy the <\/span>full<\/span> cash flow and appreciation of the property. Ark7 even features a secondary market for selling your shares early, and Arrived is launching one in summer 2025. <\/span><\/p>\n\n\n\n

But I just haven\u2019t been very impressed with the returns. My property shares on these platforms are worth less today than when I bought them:<\/span><\/p>\n\n\n\n

 <\/p>\n\n\n\n

These platforms offer a slick interface and gorgeous late-model homes\u2014for full market value. They buy these properties because they\u2019re low-maintenance and they look pretty in photos. But where\u2019s the upside? <\/span><\/p>\n\n\n\n

They\u2019re not <\/span>out there<\/span> buying ugly houses off-market at a <\/span>huge<\/span> discount and creating equity through renovations. That\u2019s too much work. But it\u2019s how <\/span>flippers<\/span><\/a> and <\/span>BRRRR investors<\/span><\/a> score great deals and earn high returns. <\/span><\/p>\n\n\n\n

And it\u2019s why these platforms offer middling returns at best. <\/span><\/p>\n\n\n\n

5. Real Estate Syndications and Equity Funds<\/span><\/h2>\n\n\n\n

Minimum investment:<\/span><\/strong> $50,000-$100,000 (solo), $5,000 (through an investment club)<\/span><\/p>\n\n\n\n

Typical returns: <\/span><\/strong>14%-30%<\/span><\/p>\n\n\n\n

The \u201cbig bad wolf\u201d of real estate investments, most middle-class investors are afraid of syndications\u2014if they\u2019ve heard of them at all. <\/span><\/p>\n\n\n\n

I get why so many unfamiliar investors fear private equity real estate. It can go wrong and lose money, just like any investment. It comes with a high minimum investment if you invest by yourself\u2014and these investments aren\u2019t liquid <\/span>at all<\/span>. <\/span><\/p>\n\n\n\n

Many don\u2019t even <\/span>allow middle-class investors to participate<\/span><\/a> at all<\/span>, only allowing wealthy accredited investors. <\/span><\/p>\n\n\n\n

But when wealthy people invest in real estate, this is how they do it. Look no further than the latest UBS study of <\/span>how billionaires have beaten the market<\/span><\/a> over the last decade. <\/span><\/p>\n\n\n\n

This<\/span> is the <\/span>main<\/span> way I currently invest in real estate. Except I don\u2019t invest <\/span>by myself<\/span> but as part of an investment club. <\/span><\/p>\n\n\n\n

Every month, we meet online and vet a new passive real estate investment. Each member can invest $5,000 or more if they like the deal. This way, we collectively surpass the high minimum investment threshold. <\/span><\/p>\n\n\n\n

Investors in private equity real estate syndications and funds get the full tax benefits, cash flow, and appreciation of owning real estate. But we get to skip the headaches of being a landlord. <\/span><\/p>\n\n\n\n

6. Private Partnerships<\/span><\/h2>\n\n\n\n

Minimum investment:<\/span><\/strong> $50,000-$100,000 (solo), $5,000 (through an investment club)<\/span><\/p>\n\n\n\n

Typical returns:<\/span><\/strong> 10%-30%<\/span><\/p>\n\n\n\n

If there\u2019s any real estate investment I love more than syndications and equity funds, it\u2019s private partnerships. <\/span><\/p>\n\n\n\n

I network with real estate investors all over the U.S. and sometimes partner with them on flips, new home construction, or some other project. I invest passively, but I get a cut of the profits. <\/span><\/p>\n\n\n\n

This<\/span> is another thing I work on through my investment club. For example, a few months ago, we went in on a series of house flips with a company that buys 70 to 90 properties <\/span>a year<\/span>. They\u2019ll flip as many <\/span>houses<\/span> as they can with our funds <\/span>over a period of<\/span> around 18 months and then close out the investment, and we walk with our profit split. <\/span><\/p>\n\n\n\n

We also partnered not long ago with a spec home builder that buys tear-down homes on huge lots, <\/span>and<\/span> subdivides them into three new lots <\/span>and<\/span> builds three homes on them.<\/span> <\/span><\/p>\n\n\n\n

Silent partnerships like these make a great way to <\/span>invest in real estate out of state<\/span><\/a> as well<\/span>.<\/span> <\/span><\/p>\n\n\n\n

On<\/span> both partnerships,<\/span> the partner provided a guaranteed floor return for our investment.<\/span> Even if something goes <\/span>horribly<\/span> wrong at one of these properties, we\u2019re guaranteed a minimum investment. That\u2019s the kind of <\/span>downside risk protection<\/span><\/a> we look for.<\/span><\/p>\n\n\n\n

7. Private Notes<\/span><\/h2>\n\n\n\n

Minimum investment:<\/span><\/strong> Negotiable<\/span><\/p>\n\n\n\n

Typical returns:<\/span><\/strong> 7%-14%<\/span><\/p>\n\n\n\n

I\u2019ve lent money to rental investors, house flippers, and other real estate investors through private notes. Sometimes, <\/span>they\u2019re backed<\/span> by a lien (or several) against <\/span>real<\/span> properties. Sometimes not. But I\u2019ve <\/span>actually<\/span> never had a note borrower default on me (knock on wood). <\/span><\/p>\n\n\n\n

We occasionally invest in notes together in our co-investing club. For instance, we invested in a secured note paying 10% with a flexible term, which each investor could terminate at any time with six months\u2019 notice. We\u2019re currently exploring a secured note with a 15% interest rate, <\/span>with a<\/span> fixed term and moderately higher risk than the 10% note. <\/span><\/p>\n\n\n\n

In fact,<\/span> I invest in secured loans instead of bonds in my <\/span>own<\/span> portfolio.<\/span><\/p>\n\n\n\n

Final Thoughts <\/span><\/h2>\n\n\n\n

There\u2019s no one perfect way to invest in real estate. Use your tax refund to experiment with small amounts in these many ways to passively invest in real estate\u2014without having to take on the side hustle of buying properties yourself. <\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

Unfortunately, many Americans blow their tax refunds on instant gratification: new gadgets, new clothes, and maybe even a flashier car. Spoiler alert: You\u2019re making yourself poorer, not richer.  Instead, consider […]<\/p>\n","protected":false},"author":158586,"featured_media":169775,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":true,"footnotes":""},"categories":[7363],"tags":[],"class_list":["post-181474","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-reits-passive-investing"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/181474","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/158586"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=181474"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/181474\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/169775"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=181474"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=181474"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=181474"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}