You don't need to be a real estate mogul to start a property investment portfolio

Many people have dreams of a HGTV, house-flipping fairytale to earn big profits, but not everyone wants to renovate a fixer-upper or be a landlord.

Luckily, there’s a host of investment options that can be less hands-on so even the most novice wannabe real estate mogul can succeed. Investing several thousand in real estate funds, putting down a few dollars in an online real estate crowdfunding platform and partnering with Twin Cities investment firms are some examples.

“You don’t have to go way out on a limb and buy a small property or small condo and try to rent it out and see how it goes,” said Bjorn Amundson, a financial planner and partner at St. Paul-based Quarry Hill Advisors. “With a lot less risk and a lot more ease, you can just invest slowly with either one of these new [crowdfunding] sites or some of the old, more tried-and-true options.”

Real estate has long been a fundamental way to accumulate wealth — often passively — and it has continued to be a reliable asset even during periods of economic downturn. Real estate can provide steady rental income and growth of property values. There are often tax benefits to putting money in real estate, too.

Here are some ways to start your real estate portfolio:

Traditional options

Investors can put money into publicly traded real estate investment trusts (REITs) that often own and operate a large range of properties.

When tenants pay rent, REITs must distribute at least 90% of their taxable income as dividends. There are also mortgage REITs. Public REITs could be a safer bet for potential investors than owning a property on their own because there is less money needed, and the risk is spread out among a group of investors. REITs, which are professionally managed, have to report their finances to the U.S. Securities and Exchange Commission.

One of the downsides of publicly traded REITs: They can be volatile and subject to the ebb and flows of the stock market and other macroeconomic factors. There are also nontraded REITs, but they require larger investments and much higher fees.

People can also choose real estate funds, mutual funds they buy shares in, which can then invest in a basket of publicly traded REITs, mortgages and individual properties. Real estate funds can have different types of assets and funding structures.

Crowdfunding changes

In recent years, the prevalence of crowdfunding has grown thanks to the Jumpstart Our Business Startups (JOBS) Act of 2012 and subsequent SEC rule updates that helped pave the way for online real estate platforms.

There are a range of crowdfunding sites, but several like Fundrise and Groundfloor are accessible to non accredited investors or people who individually make less than $200,000 a year or have a net worth of less than $1 million. These sites have become more sophisticated through the years. For example, Fundrise used to be just for individual property investments, but it has grown to offer real estate funds.

As a way to democratize the real estate investment industry, crowdfunding platforms have been an interesting game-changer. However, their potential still remains somewhat unproven with less data available on their performance through time, Amundson said. Still, even for financial planners who are skeptical, the sites could offer an interesting way for investors to explore.

“Maybe it’s a little bit of sugar, and you are doing the right thing with 90 percent of your money, and then you are having fun and educating yourself with the remaining 10 percent,” Amundson said.

A local connection

Carl Kaeding, president of Bloomington, Minnesota-based Kaeding Development, thinks the Twin Cities is ready for a new kind of real estate investment model available for the average investor but with less work than “buying a foreclosure with your cousin Phil.”

As he walked his company’s newest rental townhouse community still under construction in Blaine, Kaeding said he believed there are plenty of nonaccredited investors who would want the chance to make money on tangible real estate projects they can see and even rent out, if they liked.

For as little as $10,000, people can invest in the $33.5 million, 74-unit Foxtail Hollow development, scheduled for completion this month. It is the first project Kaeding Development is offering to investors through its real estate investment firm, Auor Capital. After the development leases out, the plan is for the Blaine project to go up for sale with Auor and its investors splitting the profit.

“We believe this investment exists, this type of investor exists,” Kaeding said, as he showed a model townhouse unit with quartz kitchen countertops and walk-in closets. “We believe there are people out there that are nonaccredited that would love to have real estate in their portfolio. And to that end, we are working very hard to prove that idea.”

Through Auor, people can invest in single-asset offerings like Foxtail so they become direct equity owners in the LLC that owns the real estate, similar to how a real estate limited partnership runs. In the future, investors would start investing before building a project.

Returns on investments in general are never guaranteed, so potential investors should be prepared for a host of different outcomes.

Lessons and mentors

Kaeding cautioned people shouldn’t use their rainy-day savings to invest and should participate in the educational seminars Auor offers to see if the program is right for them.

It takes just a few Facebook scrolls to see offers for free real estate investment classes, but if it sounds too good to be true, it often is, said Josh Fuhrer, managing partner and director of real estate development for Portland, Oregon-based Citizen Development Group.

“There’s a saying in the business world: ‘If it’s free, you’re the product,’” Fuhrer said in an email. “Many of these free classes are designed to funnel you into high-ticket mentorship programs. That doesn’t mean they’re scams, but it does mean you should go in with eyes wide open.”

Fuhrer, who has his own online real estate investment course, said people should look for education that is transparent. Even better, potential investors should look for mentors or training programs where someone also co-invests with you. There are also plenty of real estate meetups and local investor groups you can join even if you don’t have a penny to invest yet.

“Proximity to action,” Fuhrer said, “will teach you more than any book ever will.”