Crowdfunding and real estate investment trusts (REITs) are also excellent passive investment options that can offer the benefits of real estate investment without the need for extensive research or management. While some upfront work is necessary to identify investment opportunities, once invested, real estate investment can be a semi- or fully-passive investment that generates steady cash flow and potential property appreciation. Overall, passive real estate investing can provide businesses and individuals with a low-maintenance and reliable source of income.
How Does Passive Real Estate Investment Work?
An investor who maintains a passive real estate investment does not have to devote extensive time and effort to the venture.
Passive real estate investing can be made in a few different ways. There are a variety of real estate investment trusts (REITs) and crowdfunding opportunities, as well as remote ownership and real estate funds.
Like mutual funds, REITs can be invested in. Investors can pool their money to venture into commercial real estate through REITs. Their market covers almost every type of commercial property, including apartment buildings, office buildings, warehouses, shopping malls, and warehouse management companies.
Investing in real estate through crowdfunding is also one of the new passive ways to do so. Developers, for instance, might use crowdfunding to buy an apartment complex and renovate it with the hope of reselling it for profit.
The downside of crowdfunding is that it lacks liquidity and is dependent on a single asset for success, but returns can be pretty high.
Active Vs. Passive Real Estate Investment: What’s the Difference?
When investing in their first rental property, many people overlook the difference between passive and active real estate investing.
An active investment in real estate differs from a passive investment in terms of the amount of ongoing effort involved to maintain the investment.
Active Real Estate Investment
Active real estate investing refers to a person, entity, or fund that is directly involved in the investment process. Essentially, it takes your time, your capital, and your risk to engage in active real estate investing.
Active investors are involved in the entire process, either from beginning to end, or heavily in parts of it, e.g., acquisition or renovation. It is often compared to working full-time for active real estate investors.
There are several ways to become active in the real estate market, such as wholesaling or fix-and-flipping. Investing in real estate actively entails more responsibilities. Among these responsibilities are property repairs and lease agreements.
Passive Real Estate Investment
Passive real estate investment, as the name suggests, generates passive income through investing in real estate. The process is similar to that of active participation, except that much less effort is involved in the process. Although they are typically less expensive than active investments, they also have lower returns.
When you invest passively, you are in it for the long run. Investing passively reduces the amount of buying and selling within portfolios, making it a very cost-effective strategy.
Because of this, passive real estate investing is similar to buy-and-hold investing. In other words, you must resist any temptation to react or anticipate every move the stock market makes.
- Investing in real estate passively is possible even if you don’t have a great deal of money at first by crowdfunding or investing in REIT, among other methods.
- Being an expert in investing in passive real estate is not necessary. An understanding of investment analysis is all you need.
- As passive investing does not require management, it offers better liquidity than active investing and will take up less of your time.
- When you invest in passive real estate, you don’t have to do any physical labor or work – your money grows while you watch. Flipping houses and collecting rent is not required from you.
- Although passive investments don’t require as much work as active ones, they yield much less profit.
- Passive investing often entrusts investment decisions in the hands of others. When you invest in a real estate fund or have remote ownership, you leave the selection and management of your property to a third party. If they don’t do a good job maintaining or managing, your investments will suffer.
- In market fluctuations, you’ll always be at risk of issues like vacancies and depreciating property values, regardless of whether you are actively investing or passively. Market conditions heavily influence the success of an investment.
How to Choose What’s Best for You
The best answer isn’t the same for everyone. If you are willing to take on a greater level of risk and wish to play an active role in your investments, active real estate investing may be good for you. Starting small is still a good idea if you are inexperienced.
In some cases, passive real estate investments may be the best option for investors. It is hard for most people to make smart real estate purchases and sales independently. They also don’t have the time to make active investments in real estate.
Know your investment goals, risk tolerance, and time availability before you plan your real estate investment strategy. Considering these factors, you can decide whether you are better off investing in real estate actively or passively.
Invest Wisely With Saint Investment Group
When it comes to diversifying the portfolios of accredited investors and passive real estate investing, Saint Investment Group provides a comprehensive selection of real estate opportunities that helps investors achieve both. For example, our consistent and balanced portfolio of institutional-quality real estate investments can provide investors with a reliable stream of passive income.
Our approach is to utilize state-of-the-art technology combined with our in-house expertise to ensure that your investment is maximized with us. With our wealth of experience and knowledge, our team of professionals can assist accredited investors in making informed investments in strategic assets.
So if you’re looking for information on investing in the hottest real estate markets across the country, reach out to our team today by emailing email@example.com or by calling 949-881-7128 at Saint Investment Group.
Frequently Asked Questions:
What is passive real estate investing?
Investing passively in real estate entails purchasing properties without actively administering them. Instead, they invest in real estate syndications, REITs (Real Estate Investment Trusts), and other investment vehicles that enable them to own a portion of a real estate property and partake in the profits.
What are the benefits of passive real estate investing?
Without the need for active management or maintenance, passive real estate investments can provide investors with a constant stream of passive income. Moreover, real estate investments have historically minimal correlation with other asset classes such as equities and bonds, which can provide diversification benefits for an investment portfolio.
How much money do I need to invest in passive real estate investing?
The minimum investment amount can vary depending on the investment vehicle or syndication. Some REITs may allow investors to purchase shares for as little as a few hundred dollars, while private real estate syndications may require minimum investments in the tens of thousands of dollars.
How do I find passive real estate investment opportunities?
Online networks, financial advisers, and real estate investment groups are all good places for investors to discover passive real estate investment possibilities. Before putting money into a real estate venture, it is crucial to do your homework.
What are some risks associated with passive real estate investing?
Investing in inactive real estate is subject to the same dangers as any other type of business. There is always the chance that the real estate market will fall, that there will be insufficient funds available, and that the underlying property will be poorly managed, to name just a few of the potential dangers. When considering a new business chance, it’s crucial to weigh the potential downsides against your risk tolerance and long-term goals.