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What Is Passive Real Estate Investment?
Not everyone who wants to invest in real estate wants to play the role of landlord. Vetting potential tenants, dealing with maintenance issues, and collecting rent payments are time-consuming processes, not to mention stressful. Especially for a non-seasoned investor.
Fortunately, there are successful ways to invest in real estate that offer a more passive role, similar to that of stock investments or annuities. In this article, we’ll review the ways to invest in real estate passively, what the benefits of passive investing are, and what to watch out for when diving into the passive real estate investment world.
How Can You Passively Invest In Real Estate?
Although real estate investment can generate quality risk adjusted returns and the ability to grow your wealth, taking an active role in owning and managing properties isn’t for everyone. Alternatives to active real estate investment include:
- Partnerships with directly active investors
- Real estate crowdfunding platforms
- Investing in a real estate fund
Find An Active Real Estate Investor To Partner With
Partnering with investors who are professionals at an active role in real estate is perhaps the most common way people get into real estate investing. In this structure, the active investor does the legwork of finding the opportunities, managing tenant relations, and rent collection while you provide the investment capital to enable access to larger or more assets than the investor would have by themselves.
While these investments can be lucrative, they also come with significant risks involved, especially if the active real estate investor isn’t experienced and/or doesn’t have many properties in their investment portfolio to distribute risk.
Real Estate Crowdfunding Platforms
Crowdfunding for real estate has exploded in popularity in recent years. Similar to Kickstarter-style crowdfunding, platforms like Fundrise enable small-scale investors to get into the real estate world with relatively low initial investments.
These platforms typically don’t provide anywhere near the level of transparency you’d get from individual property investment, but many offer institutional-quality investments with relatively stable returns.
One downside to these types of real estate investments is that you’re only one of tens of thousands of investors, so the experience often has less detailed reporting compared with alternatives like real estate investment funds from Saint Investment Group.
Invest in a Real Estate Investment Fund
Real estate investment funds are similar to crowdfunding in the sense you pool your capital with other investors to buy into larger real estate investments. Where real estate investment funds differ from crowdfunding is that you gain access to institutional-quality investments with generally greater insight into each opportunity, along with more sophisticated portfolios of properties.
What are the Benefits of Passive Real Estate Investment?
Investors may profit from passive real estate acquisition in a number of ways. The possibility of consistent rental revenue and long-term financial growth is one of the biggest advantages. Investors can profit from the consistent cash flow produced by renting revenue as well as the possibility for property values to rise over time by making investments in a diversified collection of properties through a real estate investment trust (REIT) or crowdfunding platform. Additionally, passive real estate buying reduces the risk of substantial losses resulting from the performance of a single asset or market by allowing buyers to spread their risk across a number of assets and regions. Additionally, this diversity can give a financial strategy stability and possibly reduce total risk.
Are There Drawbacks To Passive Real Estate Investing?
The drawbacks to passive real estate investing are few but could make a difference for some investors. If you’re someone who’s trying to earn the maximum ROI in the least amount of time, passive investing roles aren’t the best option.
Passive real estate investing is better oriented with long-term investment goals and those seeking consistent, solid passive income streams that can be reinvested for secure wealth growth.
Also, for those who love to know every detail of a property investment down to the plumbing, passive investment in real estate isn’t ideal. Typically, more passive roles leave many smaller details out of the decision process for the investor (and most investors prefer it this way).
That said, if you prefer keeping your role simple with monthly statement reviews alone, passive real estate investing such as a fund from Saint Investment Group is an ideal avenue to pursue.
How Do You Get Started With Passive Real Estate Investing?
When deciding if passive real estate investing is right for you, it’s important to first ask yourself some key questions relevant to every type of investment.
What Are Your Goals For Passive Real Estate Investing?
- Are you trying to generate monthly passive income, or are you trying to grow wealth long-term?
- How much do you have to invest?
- What level of risk tolerance do you have?
Where Else Is Your Capital Allocated?
Many people considering passive real estate investing are interested in diversifying existing portfolios that are heavy in stocks and bonds. Depending on your investment goals and how soon you’ll be retiring, your capital should be allocated accordingly. The team at Saint Investment is here to help you land on the best capital allocation strategy for both your short-term and long-term goals.
How to Evaluate Passive Real Estate Investment Opportunities?
Investors may find it difficult to evaluate passive real estate investment possibilities, but there are some important aspects to take into account. To clearly grasp the asset’s value and possible return on investment, investors should first conduct thorough market and property study in their area. For instance, they ought to consider the region’s leasing prices—both present and future—as well as occupancy and vacancy rates. A REIT or crowdsourcing platform, for example, are examples of investment vehicles. Investors should also take into account the investment strategy of these platforms and comprehend how it works into their total investment portfolio.
Investors should also learn as much as they can about the investment, such as specifics regarding the property, management group, and investment framework. The interest rate, management fees, and any other charges should all be considered when analyzing the fees and costs related to the transaction. Investors can decide whether an inactive real estate investment chance is appropriate for their financial goals and risk tolerance by carefully weighing these considerations.
Is Passive Real Estate Investing Better Than Active Investment Options?
Passive Doesn’t Mean Zero Effort
Even though passive real estate investment options provide a very low-effort place to put your capital, there’s still some work involved.
Depending on how you choose to invest, whether with an active partner or buying shares of a fund, differing due diligence levels are crucial to accomplishing your investment goals.
Investing with a fund requires the least amount of effort, but it’s important to be sure the fund managers have investing goals that are well-aligned with your own.
Are Returns Less With Passive Investing?
The returns you can expect with passive real estate investment can range widely, with higher returns generally requiring higher levels of risk and more active involvement.
While the returns may be slightly lower, many investors find the security and risk-mitigation benefits of passive real estate investment more than compensates for this, as well as the additional benefits of significant diversification.
Ready To Start Earning Passive Income From Real Estate?
Are you ready to diversify your portfolio with passive real estate investing? When you want a team of real estate experts that analyze every deal on your side, Saint Investment Group is ready to help you get started. And with detailed reporting and deal transparency, you can earn passive real estate income with peace of mind. Call (323) 483-0291 today to learn how to get started.
Frequently Asked Questions:
Passive real estate investing is a form of investment in which an individual provides funds to a real estate company or trust, which then uses the capital to purchase and manage properties that generate income. The investor earns a portion of the income generated without being directly involved in the day-to-day operations or management of the properties. This provides a way for the investor to earn passive income and diversify their portfolio without the need for active involvement.
A person invests passively in real estate by providing funds to a real estate investment business or trust, which subsequently purchases and manages income-generating properties. The produced money is dispersed to the investors, who get passive income without maintaining the properties actively. The investor is able to track the success of their investment via updates provided by the company or trust.
Passive real estate investment provides several benefits, including passive income, diversification, professional management, access to a wider range of properties, potential for higher returns, liquidity, and reduced risk.
Like equities, REITs are traded on open markets. A brokerage account can be used by investors to buy shares of an openly listed REIT.
Before committing money to any business chance, investors should conduct their due research and carefully weigh the risks and possible rewards. This might entail learning more about the management team of the investment vehicle, examining the past performance of investments that are comparable to this one, and comprehending the risks and possible rewards of the investment.
President of Saint Investment Group
Nic is a two decade seasoned expert in investing and capital raising, specializing in Real Estate and debt markets. With Saint Investment Group, he leads large-scale distressed asset purchases and innovative syndications for investors.