Real estate is a tangible asset, but investors have several online options to invest in this massive asset class.

Real estate investing doesn’t have to turn you into a landlord, and you can even harness the power of blockchain technology to enhance your online real estate investments.

If the idea of investing in and managing an online real estate portfolio is appealing, then keep reading. Find out what it means to invest in real estate online, along with the major pros and cons of this approach to the real estate market.

🎥 Prefer to watch a video on this topic? Click here.

In this article:

• Ways to invest
• Pros and cons
• Steps to get started

What is online investing in real estate?

Online real estate investing refers to investing in real estate opportunities that are available through an online platform or fund. Online real estate investing generally does not result in physical ownership or custody of a specific property or properties.

Investors can access both primary offerings and secondary markets online to invest in real estate. Blockchain technology can support real estate offerings that resemble traditional private placements, in addition to secondary markets that can create liquidity for online real estate investors. Traditional fund structures can enable online real estate investing that resembles investing in stocks or bonds.

Real estate investing online can be for commercial real estate or residential real estate, but is often focused on commercial properties. Commercial real estate opportunities are often rental properties with strong cash flow characteristics. Many online platforms support commercial real estate and other types of rental properties.

Ways to invest in real estate online

If you want to invest in real estate online, then you have a few options. Keep reading to understand the various ways for online investors to gain portfolio exposure to real estate.

Traditional crowdfunding 

Investors can use traditional online platforms that crowdfund real estate. While the crowdfunding model can be applied to many different types of projects and assets, many crowdfunding sites are designed specifically for real estate. Real estate crowdfunding platforms frequently focus on commercial real estate such as multifamily rental properties. 

Crowdfunding works by bringing a “crowd” of individual investors together to fund a project or asset, which can be a specific property. Traditional crowdfunding platforms are centrally managed by a private entity, which investors are obligated to trust in order to access the platform’s real estate offerings. 

Crowdfunding fractionalizes real estate offerings, making real estate accessible to more investors by lowering the required investment minimum. Traditional crowdfunding platforms, including for real estate, are challenged to efficiently manage and communicate with large numbers of investors.

Real estate investment trusts

Another way to invest in real estate online is to purchase shares in a real estate investment trust (REIT). REITs are a type of fund that directly own income-producing real estate, such as apartment buildings, hotels, office buildings, and warehouses. Investors in REITs are directly paid a share of a fund’s income in proportion to their investment in the REIT.

REITs may be publicly traded like stock on an exchange, or may be non-traded, private REITs. Investors in REITs may pay low to no fees, depending on the type of REIT and brokerage fee structure, or may pay substantial fees to a private REIT manager.

REIT investors can choose a real estate investment trust with a specific focus area, like multifamily housing, but do not have the flexibility to select specific real estate investments. REIT fund managers develop and manage a REIT’s portfolio, and oversee the distributions—usually quarterly—of the REIT’s income.

Real estate funds 

A real estate fund is an exchange-traded fund (ETF) or mutual fund that invests in real estate companies, including REITs. Whereas REITs pay out rental income to investors, real estate funds generate value by investing in high-performing real estate enterprises. Investors can buy shares in real estate funds as another online way to invest in real estate.

Real estate funds can be actively or passively managed. Actively managed funds are professionally guided by investment managers, whereas passively managed funds typically track a specific index such as the MSCI World Real Estate Index. 

The fees for actively managed real estate funds are generally higher than the fees charged by passive fund managers. ETFs are more frequently passively managed and have low fees, while mutual funds typically charge higher fees for active management by professional investors.

Tokenized real estate

Investors can add real estate to their portfolios by investing in tokenized real estate. Online platforms like HoneyBricks that tokenize real estate use blockchain technology to issue and support real estate tokens, which digitally signify fractional ownership in a specific property.

Tokenized real estate can combine the benefits of traditional crowdfunding for real estate with the efficiency, transparency, and security of blockchain technology. Leveraging blockchain tech can enable a real estate tokenization platform to easily manage and communicate with large numbers of investors, in addition to supporting a secondary marketplace for the liquid exchange of real estate tokens.

Real estate tokenization platforms like HoneyBricks don’t issue proprietary tokens, but rather enable professional real estate sponsors to tokenize their offerings. Real estate token investors can easily diversify their real estate holdings by buying and selling real estate tokens whenever they wish (after an initial holding period). Most tokenization platforms pay regular returns to investors, and collect a fee as a percentage of the income generated from a property.

Pros and cons of investing in real estate online

Investing in real estate online has both perks and drawbacks. Let’s dig into some of the major pros and cons of online real estate investing:

Pros 

• Wide asset selection: Investing in real estate online can provide access to a wide selection of real estate assets and funds. Online real estate platforms can create access for investors to locations worldwide.
• Easier to diversify holdings: Online real estate investments are generally more liquid than direct physical ownership, making it easier to invest in multiple properties or types of real estate investments.
• More efficient transactions: Using an online platform or fund to invest in real estate is generally more efficient than buying a property outright. Online transactions are generally faster and cheaper.
• Not a landlord: Online investors in real estate can access the benefits of real estate as an asset class without being obligated to carry out landlord duties. Online platforms and funds don’t require investors to physically take custody of a real asset.

Cons

• Limited ability to choose specific investments: Real estate fund investors don’t have the option to choose specific investments for the fund. Fund managers evaluate and select specific properties and companies.
• Potentially higher fees: The fees charged by online real estate platforms or funds can vary greatly. Investors need to carefully evaluate the fees associated with any online real estate investment.
• No physical ownership: Investors wishing to physically own property may prefer not to invest online in real estate. Online real estate investing generally assigns custody of a property to a professional management team.

How to start investing in real estate online (video)

Evaluating real estate investments can be complex for beginners, but there are only four numbers that can give you the shape of the deal.

HoneyBricks has helped thousands of investors learn and invest in real estate through security tokens and in this video - hear from Andy Crebar, co-founder and CEO of HoneyBricks what you should look for in online platforms.

This video covers:

• How to assess an online real estate investing platform
• How to filter deals in the marketplace
• How to understand the operator of the asset
• What to look for when digging into the deal
• How to make a decision

Should you invest in real estate online?

Online investing in real estate can be appealing to investors who want the benefits of real estate ownership without the hassle of physically caring for property. Investors have many options to invest online in real estate, although they should be prepared to pay investment fees for the convenience of professional management. Investing in real estate online is not riskless, which is why every investor should do their own research—and plenty of it—before allocating any money.