Passive real estate investing is a strategy where investors put their money into projects managed by someone else.
This approach allows investors to reap the rewards and create multiple streams of income without having to put in the time and effort needed to be a successful landlord or house flipper.
But what exactly does passive real estate investing include? Let’s take a closer look!
Passive Real Estate Investing
Real estate investing can be passive, meaning the real estate investor doesn’t have to be actively involved in property management. A passive real estate investment doesn’t require much effort on the investor’s part.
Real estate investment trusts (REITs), crowdfunding programs, remote ownership, and real estate funds are just a few ways to invest in real estate passively and earn a high passive income.
When investing in passive real estate, you don’t have to do any physical work on the property. You’re also not responsible for finding tenants or managing the property. All of that is taken care of by someone else.
Here are the 4 main types of passive real estate investing:
A REIT is a real estate investment trust wherein a company owns, finances, or operates real estate that is typically income-producing.
You can invest in three primary types of REITs: exchange-traded options, non-traded REITs, and private REITs. The minimum amount to invest in a REIT is anywhere from $1,000 – $25,000 minimum investment, depending on the specific REIT.
The main advantage of investing in a REIT is that it provides investors with exposure to various real estate investments without having to purchase or finance properties themselves.
Some REITs will buy a portfolio of properties that they believe will produce an adequate passive income return. At the same time, other investors will invest in real estate debt, mortgage-backed securities, and mortgages.
Additionally, REITs must distribute at least 90% of their taxable income to shareholders in the form of dividends, making them an attractive investment for income-seeking investors. Dividends, however, may be based on the interest payments of mortgage loans.
Real Estate Mutual Funds
Mutual funds are portfolios managed by people that allocate money from investors to create diversification and attempt to make gains.
Real estate funds can be a great option for those who want to invest in real estate but don’t have the time or knowledge to do it themselves.
Professionals manage real estate funds and research where the real estate funds should put their money.
Unlike REITs, a real estate fund is more diversified and invests in a greater variety of assets. Commercial real estate properties such as apartment buildings, office space, retail, and property are common investments in real estate funds.
Another passive real estate investment is remote ownership, which allows you to acquire full ownership of a property in another city or state without having to live there or manage the day-to-day operations.
Many seasoned real estate investors prefer this passive investment approach since it provides total control of the property without requiring you to manage the property.
The amount of money it takes to start remote ownership depends on the property’s purchase price in the real estate market.
In this case, you’ll be working with a property management company to take care of everything from maintenance to rent collection on the rental property.
The main advantage of remote ownership is that it allows you to invest in high-growth markets that you might not otherwise have access to and make money from it.
The downside of remote ownership is that it can be more expensive and time-consuming than other types of direct real estate investing since you’ll need to factor in the cost of property management and travel if you’re ever needed on site.
Another way to invest in real estate passively is through crowdfunding platforms. Crowdfunding platforms allow investors to pool their money in a smaller investor pool to invest in real estate projects to generate income.
Investing in real estate through online platforms allows you to diversify your investment across multiple properties and different types of real estate projects.
An ownership stake in a series of properties that you acquire through a real estate crowdfunding company provides you with the opportunity to realize tax benefits that work to offset your regular income.
The investment minimums for crowdfunded projects typically range from $500 – $100,000, depending on the project.
Additionally, most crowdfunding platforms provide some level of due diligence on the real estate projects they list, which can help you avoid investing in a project that is not likely to be successful.
One downside of investing in real estate through a crowdfunding platform is that you will likely have less control over the properties than if you were to invest directly.
Now that we’ve discussed some passive real estate investing options, where can you invest?
Here are a few online platforms where you can invest in property and real estate in various ways:
Fundrise is a real estate investment platform that offers the ability to invest in commercial and residential properties.
There is also no limit to how much you can invest with Fundrise, making it an excellent option for investors who want to commit a large amount of money to real estate investing.
However, one downside of Fundrise is that it only offers investment opportunities in the United States.
The minimum investment is only $10 to start investing- check out our Fundrise Review to find out more about the platform!
Roofstock is an option for investors who want to invest in real estate without managing the property actively. Roofstock offers a curated selection of investment properties pre-screened and ready to go.
This makes it a great option for investors who want to invest in real estate but don’t have the time or expertise to do the due diligence.
The minimum investment with Roofstock is $5,000, and there is no limit to how much you can invest.
One downside of Roofstock is that it only offers investment opportunities in the United States.
CrowdStreet is a real estate crowdfunding platform that offers the ability to invest in various commercial properties in the United States.
The minimum investment with CrowdStreet is $25,000, and there is no limit to how much you can invest. However, one downside of CrowdStreet is that it is only available to accredited investors.
CrowdStreet is another option for investors who want more control over their real estate investments.
Additionally, CrowdStreet offers a variety of due diligence resources that can help you research the projects in which you’re interested.
Realty Mogul is a real estate crowdfunding platform that offers the ability to invest in institutional-level real estate investments.
Various alternatives are available to non-accredited and accredited investors, such as real estate investment trusts (REITs), individual properties, and 1031 private placement investments.
The account minimum is $5,000, and you can choose to either actively or passively manage your investments.
This is the platform to go with for those who want to make yearly gains from the public, non-traded REITs, or single properties. It’s also a fantastic choice for well-qualified investors looking to take advantage of 1031 exchanges’ tax benefits.
Pros & Cons Of Real Estate Investing
- Rent is a great passive income generator
- It takes less time than active real estate investing
- Knowledge of property management or housing isn’t necessary for investing
- Don’t have to manage the property yourself
- Lower starting capital required for REITs
- Adds diversity to your investment portfolio when you passively invest
- Some real estate investing needs a high initial investment
- Must put a lot of trust for property in the hands of property management
- You need to hire a trustworthy management company!
- Must share income with other investors in some investment cases
- Lack of liquidity
Is passive real estate investing for you?
Passive real estate investing is a very lucrative way to make money, but it’s not the right investment strategy for everyone.
Investors looking for a hands-off investment option may find that passive real estate investing is a good fit.
Whether or not passive real estate investing is right for you depends on your goals, your investment strategy, and your willingness to put in the work. You may want to look elsewhere if you’re looking for a genuinely hands-off investment.
However, passive real estate investing can be a great way to make money if you’re willing to learn and put in the effort.
What is active vs. passive investing?
There is a difference between actively investing and passive real estate investing:
Active real estate investments
Being an active investor in real estate is when you purchase a property and actively manage it to earn a return on investment.
It’s where the active real estate investor participates in improving the investment property, developing the property, or managing the property as a rental property.
Fixer-uppers are considered active real estate investing. Rental properties are investment properties included in this category if you manage the property yourself.
Passive real estate investing
Passive real estate investments are when you buy a property and have someone manage it for you, so you do not have to deal with the details. Passive investing is a more hands-off real estate deal than active investing.
A real estate investment trust (REIT) is an excellent example of a way to invest passively.
The important thing to remember is that passive real estate investments entail minimal effort from real estate investors to make passive income.
Why pick real estate investments?
Real estate has proven to be a solid investment over time. It can offer stability and appreciation and the potential for income through rentals.
Unlike stocks or other investments, it is a physical asset you can see and touch. That tangible quality can make it easier to understand and value than more abstract investments.
It can be a good hedge against inflation. As prices rise, the value of your property is likely to increase as well, providing a buffer against rising costs. This can provide a valuable source of financial security in retirement.
For all these reasons, this kind of investing can be an attractive option for those looking to build long-term wealth.
What other passive investments are there?
There are many other investment types you can choose from to get passive income. Here are a few platforms to check out and diversify your investing:
Robinhood is a popular investment app offering commission-free trading and is the top pick for most investor beginners. Robinhood is a great option for investors who want to build a long-term, diversified portfolio with low costs. They offer ETFs and other stocks, but also cryptocurrency!
Betterment is a popular Robo-advisor that offers passive and active investment options with stocks, ETF trading, and retirement accounts. It’s an excellent option for beginners who want to invest in a company that offers outstanding customer service and support.
Acorns is an investment app that helps you invest your spare change by rounding up your credit and debit card purchases to the nearest dollar. The Acorns app is the best option for beginners who want to start investing with little money and be more hands-off with stock investing.
Stash is an investment app that offers commission-free stock, ETF trading, and Tradition and Roth individual retirement accounts. It is an excellent option for beginners who want to start investing with as little as $5.
M1 Finance is an investment app that offers commission-free stock and ETF trading and IRA, Roth IRA, and SEP IRA accounts. M1 Finance is an excellent option for investors who want to build a long-term, diversified portfolio.
Passive investing in real estate is a great passive income idea and is a way to invest your money without worrying about the details.
You can earn returns on your long-term investment with little effort by choosing a passive investment option.
There are several options available for passive investors, so it’s essential to do your research and choose the best option for income-producing assets.
With some planning and patience, passive investing can be a great way to build your wealth over time and start on your way to financial freedom.