Evaluating the Potential of Passive Real Estate Investments

evaluating the potential of passive real estate investments

The act of passive real estate investing entails owning a rental property that generates passive income without you having to manage or operate them on a daily basis.

For those who prefer to invest in physical assets, real estate, which includes land, houses, offices, and retail buildings, is a common choice. Since it is comparatively easy to borrow money to buy a single-family home and other properties, real estate is a popular investment choice for many people. 

If you are a passive investor, you don’t want to waste your time chasing down leaky faucets and rent checks. You need a team of experienced professionals behind you who will handle all of that for you, and that group typically includes a licensed property manager. Choose a real estate business that has a solid track record and reputable investor referrals.

The information in this article will help you make intelligent decisions and evaluate the potential of various passive real estate investment opportunities, no matter whether you are a seasoned investor or a novice.

Overview of Passive Real Estate Investing

A passive real estate investment, also called non-active investing, involves no direct involvement from the investor. This real estate strategy lets investors benefit from cash returns from rental income without being actively engaged in day-to-day management and responsibilities.

Investing in passive real estate is sometimes referred to as hands-off investing because the investor is not required to do any hands-on work. Real estate syndications, crowdfunding platforms, and real estate investment trusts (REITs) are some of the forms of passive investment in real estate.

Investment in real estate is popular because rental income can generate long-term passive income streams that are relatively stable. However, the return on investment of passive investors is generally lower than those of active investors, who do the work themselves rather than paying property management company fees.

Passive real estate investors are likely to never see the investment properties they purchased. The finer points of ownership are managed by teams of experts—letting them concentrate on the basics of rental property as an investment.

How to Analyze a Passive Real Estate Deal

The most significant action a passive investor can take is an active one. Before committing money to a real estate investment opportunity, it is essential that all investors conduct a sufficient degree of due diligence.

While all passive real estate investments of institutional investors have been successful, they haven’t all been smooth sailing. The following tactics should be used when evaluating the potential of an investment to make sure that it is profitable and low-risk to the extent possible:

Determine the Best Investment Location

The first thing to understand about real estate investing is that it is, and will always be, all about location, location, location. You may not believe that, but keep in mind that location has a significant impact on the:

  • Property purchase price
  • Rental rates you can charge
  • Potential tenants you’ll attract
  • Problems that may arise
  • Future appreciation of your property

So, it goes without saying that the location of your real estate investment affects its profitability. A big reason why new investors lose money relates almost nothing to the property itself but to its location.

Hence, before buying a property, make sure the location makes good sense for real estate investment.

Collect Relevant Information

Numbers play an important role in real estate investing. Basically, every property for sale has data and information out there that you can find.

As you might anticipate, a real estate investment analysis is composed of using such information and figures that pertain to the property in your computations to determine the potential returns it will generate.

The data you’re getting can be inaccurate or missing a number, which can lead to false estimates of your rate of returns. As a result, you might move forward with a real estate deal thinking it will be profitable when in fact, it will cost more than it will make, and you will incur a negative return.

Calculate Monthly Cash Flow

After analyzing the location and gathering the needed numbers, the time has come to start evaluating the real estate deal.

The first thing investors calculate in their analysis is the investment property’s monthly cash flow. In real estate investing, cash flow is the byproduct of owning a rental property and leasing it to tenants.

An income-producing rental property should have a positive cash flow each month. When all expenses are discounted, real estate investors gain extra income from renting their properties—that is, income that they can keep. As a general rule, the higher the NET cash flow, the higher the ROI.

Conduct a Comparative Market Analysis

When it comes to analyzing the potential of passive real estate deals, the final step is connecting the dots and giving a final verdict. Suppose you’ve done all the calculations needed and determined that the property for sale which you’re eyeing has a high investment potential.

But how can you tell if it is priced fairly? Investors do not want to overpay for a property and lower their chances of getting high real estate returns. It is for this reason that you should conduct a comparative market analysis (CMA).

Performing a CMA is part of the valuation process for real estate investments. This report compares the property with similar properties that have recently sold in the desired area to get a better sense of its overall quality. Known as comparables, these properties must have similar characteristics, such as age, square footage, condition, and location as your current real estate property.

It is important to note that short sales and foreclosures should be ignored. As a result, these values represent “distressed” values and are not indicative of market values.

Make a Profit from Passive Real Estate Investing with Saint Investment Group!

Understanding the methods and strategies of passive income investing is essential to making the best investments. A step of this magnitude requires thoughtful consideration, but it pays off if done carefully. You need to choose the right real estate professionals to work with in order to get the most out of your investments. 

Choosing a company is a big decision when doing real estate transactions and creating real estate portfolios. You shouldn’t choose anyone on a whim. Make sure you select a company that can provide you with the services you need.Interested in becoming an investor, and having a diversified portfolio? You can count on us to help you evaluate passive real estate investment opportunities. Send us an email at info@saintinvestment.com or contact us at 949-881-7128 at Saint Investment Group today!