3 proven ways to make money from real estate without owning property

From rental arbitrage and co-hosting to Real Estate Investment Trusts (REITs), individuals have many ways to earn steady rental income in India without directly purchasing the property. Let’s take a look at three proven ways in which you can earn passive income from property without ownership and build wealth over time.

Rental arbitrage

Rental arbitrage is a business model where you rent a property from a landlord and then sublet it to short- or long-term tenants, often through platforms like Airbnb. The difference between the rent you pay and the rent you collect is the profit you make.

However, it is essential for you to explicitly mention it in the lease agreement that you’re renting the property for subletting it further. The Model Tenancy Act, 2021, adopted by several Indian states, prohibits subletting unless permitted in the lease agreement and registered with the local Rent Authority. All municipal regulations, including guest limits and local taxes, must be followed when entering this business structure.

Rental arbitrage isn’t considered as rental income under ‘Income from House Property’, but under ‘Income from Other Sources’ or business income while paying taxes.

Co-hosting and property management

This is pretty popular in vacation hotspots like Udaipur, Goa, and even some parts of Himachal Pradesh. In this business, people manage property listings on behalf of owners. They become a substitute for tasks generally performed by owners, such as handling bookings, guest support, maintenance and more. Individuals who prefer low capital risk co-host and manage properties to earn money.

In exchange for their management, they get a share of the rental income. Co-hosting requires operations management, but does not require property ownership. For tax purposes, it’s treated as business income, not rental income.

REITs

The easiest and most accessible way to earn rental income without directly owning the property is through Real Estate Investment Trusts (REITs). REIT regulations were introduced in India by the Securities and Exchange Board of India (SEBI) on September 26, 2014, with the first listing in April 2019. It allows individuals to invest in large-scale commercial real estate such as office parks and shopping malls by purchasing units listed on stock exchanges.

A REIT is like a mutual fund; it pools funds from the investors and invests in real estate assets. In turn, investors receive dividends from the rental income generated by these properties.

Currently, India has four listed REITs, according to the India REITs Association: Embassy Office Parks REIT, Mindspace Business Parks REIT, Brookfield India Real Estate Trust and Nexus Select Trust. The growth of Real Estate Investment Trusts (REITs) is attracting domestic and foreign institutional investors in Indian commercial real estate, making the way for more REITs to be introduced in India by this year.

REITs offer various benefits, like liquidity, allowing easy buy and sell options as they are traded on stock exchanges. It also becomes a source of passive income for individuals, giving them regular dividends from rental income, and provides exposure to multiple properties.

There are three main types of REITs:

• Equity REITs: You own and lease properties, allowing you to generate income from them.
• Mortgage REITs: You lend the property to developers and earn interest income.
• Hybrid REITs: It is a mix of both, offering diversified income streams.

If you want to earn passive income through renting options, start by defining your goals and understanding the terms and conditions of each of these options. Remember that these income sources have their own risks and regulatory considerations, so read the fine print carefully before investing in them.