Did You Get a Tax Refund? Here Are 7 Ways to Invest It In Real Estate

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Sadly, many People blow their tax refunds on prompt gratification: new devices, new garments, and possibly even a flashier automotive. Spoiler alert: You’re making your self poorer, not richer. 

As a substitute, take into account investing your tax refund in unfamiliar actual property investments to experiment and discover the proper investing technique for you. 

Attempt these hands-off actual property investments that require simply $500 to $5,000, slightly than the $50,000+ you’d want to purchase a rental property or spend money on non-public fairness actual property by your self. 

1. Public REITs

Minimal funding: $20-$100

Typical returns: 8-11%

You’ve in all probability heard of actual property funding trusts (REITs). They arrive with their personal professionals and cons, similar to all investments.

On the plus aspect, you should buy single shares for $20-$100, utilizing your common brokerage account or IRA. You may promote these shares at any time, for full liquidity. And so they have a tendency to return with excessive dividend yields. 

Additionally they include their share of downsides. As an illustration, the darkish aspect of liquidity is volatility: Any asset which you could purchase and promote immediately (shares, ETFs, cryptocurrencies) will inherently bounce everywhere in the place in worth. 

However even worse than that, publicly traded REITs share a disturbingly excessive correlation with the inventory market at massive. This defeats all the function of diversifying your portfolio to incorporate actual property. 

2. Non-public REITs

Minimal funding: $10-$1,000

Typical returns: 5-9%

Alternatively, you possibly can spend money on non-public REITs, corresponding to these provided by Fundrise and Streitwise. They don’t have the volatility drawback or the correlation with the inventory market—as a result of they’ve so little liquidity. You must depart your cash locked up for years on finish when you don’t wish to get hit with nasty penalties. 

I might stay with that lack of liquidity if these investments truly paid robust returns. And so they had, for a little whereas (just like the years main as much as 2022). However they simply haven’t carried out very properly in comparison with different actual property investments corresponding to public REITs, privately owned properties, or non-public fairness actual property. 

In 2022, Fundrise delivered a median annual return of 1.50%. In 2023, it misplaced buyers cash at -7.45%, and in 2024 delivered 5.75% annualized returns. Pardon me if I don’t shoot off all of the confetti directly.  

For full disclosure, I not spend money on REITs in any respect. However I needed to incorporate them as choices on the record when you weren’t aware of them. 

So, what do I spend money on?

3. Actual Property Secured Debt

Minimal funding: $100-$5,000

Typical returns: 6%-10%

You could have loads of choices to spend money on money owed secured by actual property. 

The simplest method to get began is thru platforms like Groundfloor. It points exhausting cash loans and funds them by way of buyers such as you and me. Groundfloor allows you to decide and select particular person loans to fund, or you possibly can spend money on their Flywheel Portfolio, which incorporates many loans. Or you possibly can lend cash on to Groundfloor, albeit at a decrease rate of interest. 

Alternatively, you possibly can spend money on actual property debt funds. For instance, 7e Investments affords a non-performing notice fund that pays 8%-10% like clockwork. Count on the next minimal funding, nonetheless, on this case $5,000. 

4. Fractional Possession in Rental Properties

Minimal funding: $100

Typical returns: 5%-8%

Platforms like Arrived and Ark7 allow you to purchase fractional shares of single-family rental properties. That features each conventional long-term leases and short-term trip leases.  

As a partial proprietor, you benefit from the full money circulation and appreciation of the property. Ark7 even includes a secondary marketplace for promoting your shares early, and Arrived is launching one in summer season 2025. 

However I simply haven’t been very impressed with the returns. My property shares on these platforms are value much less right now than once I purchased them:

 

These platforms provide a slick interface and beautiful late-model houses—for full market worth. They purchase these properties as a result of they’re low-maintenance they usually look fairly in pictures. However the place’s the upside? 

They’re not on the market shopping for ugly homes off-market at a enormous low cost and creating fairness by way of renovations. That’s an excessive amount of work. Nevertheless it’s how flippers and BRRRR buyers rating nice offers and earn excessive returns. 

And it’s why these platforms provide middling returns at finest. 

5. Actual Property Syndications and Fairness Funds

Minimal funding: $50,000-$100,000 (solo), $5,000 (by way of an funding membership)

Typical returns: 14%-30%

The “massive unhealthy wolf” of actual property investments, most middle-class buyers are afraid of syndications—in the event that they’ve heard of them in any respect. 

I get why so many unfamiliar buyers worry non-public fairness actual property. It will possibly go incorrect and lose cash, similar to any funding. It comes with a excessive minimal funding when you make investments by your self—and these investments aren’t liquid in any respect. 

Many don’t even enable middle-class buyers to take part in any respect, solely permitting rich accredited buyers. 

However when rich individuals spend money on actual property, that is how they do it. Look no additional than the newest UBS research of how billionaires have overwhelmed the market over the past decade. 

This is the primary approach I at present spend money on actual property. Besides I don’t make investments on my own however as a part of an funding membership. 

Each month, we meet on-line and vet a brand new passive actual property funding. Every member can make investments $5,000 or extra in the event that they just like the deal. This fashion, we collectively surpass the excessive minimal funding threshold. 

Traders in non-public fairness actual property syndications and funds get the complete tax advantages, money circulation, and appreciation of proudly owning actual property. However we get to skip the complications of being a landlord. 

6. Non-public Partnerships

Minimal funding: $50,000-$100,000 (solo), $5,000 (by way of an funding membership)

Typical returns: 10%-30%

If there’s any actual property funding I really like greater than syndications and fairness funds, it’s non-public partnerships. 

I community with actual property buyers everywhere in the U.S. and typically companion with them on flips, new residence building, or another mission. I make investments passively, however I get a lower of the income. 

This is one other factor I work on by way of my funding membership. For instance, a number of months in the past, we went in on a collection of home flips with an organization that buys 70 to 90 properties a 12 months. They’ll flip as many homes as they’ll with our funds over a interval of round 18 months after which shut out the funding, and we stroll with our revenue cut up. 

We additionally partnered not way back with a spec residence builder that buys tear-down houses on enormous heaps, and subdivides them into three new heaps and builds three houses on them. 

Silent partnerships like these make a good way to spend money on actual property out of state as properly. 

On each partnerships, the companion offered a assured flooring return for our funding. Even when one thing goes horribly incorrect at one among these properties, we’re assured a minimal funding. That’s the sort of draw back danger safety we search for.

7. Non-public Notes

Minimal funding: Negotiable

Typical returns: 7%-14%

I’ve lent cash to rental buyers, home flippers, and different actual property buyers by way of non-public notes. Generally, they’re backed by a lien (or a number of) in opposition to actual properties. Generally not. However I’ve truly by no means had a notice borrower default on me (knock on wooden). 

We sometimes spend money on notes collectively in our co-investing membership. As an illustration, we invested in a secured notice paying 10% with a versatile time period, which every investor might terminate at any time with six months’ discover. We’re at present exploring a secured notice with a 15% rate of interest, with a fastened time period and reasonably greater danger than the ten% notice. 

In truth, I spend money on secured loans as a substitute of bonds in my personal portfolio.

Last Ideas 

There’s nobody good method to spend money on actual property. Use your tax refund to experiment with small quantities in these some ways to passively spend money on actual property—with out having to tackle the aspect hustle of shopping for properties your self.