When you hear the word passive, it may sound boring. But actually passive investing is something that is great for the long-term. When it comes to real estate investments, trying out passive real estate investing can brings lots of gain in the long-term.
If you interested in investing in real estate but find the idea of flipping houses or managing rental properties too much work? If so, then passive real estate investing might be right for you.
Passive real estate investing is an excellent way to earn extra income without having to put in extensive effort. Unlike active real estate investing, which requires significant physical labor and attention, passive investing allows you to make money without acting as a landlord or doing any physical work.
Interested in earning extra income without the hassle of being a landlord or looking at chart patterns everyday or every weekend. Then continue on reading this article to check out how to earn extra income through passive real estate investing. But if you like to do some dirty work as being a landlord, check out how to calculate your gross rental yield and cash on cash investments formula by this guide here.
Table of Contents
What is Passive Real Estate Investing
Passive real estate investing refers to investing in real estate without actively managing the properties yourself. With passive investments, you earn money without the need for physical labor or taking on the responsibilities of a landlord. There are several ways to invest passively in real estate, including real estate investment trusts (REITs), crowdfunding opportunities, remote ownership, and real estate funds.
Different Ways to Invest Passively in Real Estate
Real Estate Crowdfunding
Real estate crowdfunding is a method of investing that involves pooling resources with other investors to invest in a larger property. It’s usually done through online platforms that allow multiple users to invest indirectly in mortgage loans anywhere in the country. This method is similar to online platforms that allow users to invest in partial shares of company stocks. A great in-depth source on real estate crowdfunding investing strategy, here by investopedia.
Real Estate Investment Trusts (REITs)
REITs are companies that own and operate real estate properties. They invest in various types of real estate, including commercial properties, and pay out their profits as shareholder dividends each year. REITs are usually publicly traded and investors can make money through them by investing in the company through exchange funds. Many investors use retirement funds or even savings to invest in REITs through their retirement accounts.
As REITs have long-term gains and do not looking for short-term volatility and market fluctuation. However it is advisable to always keep up with current trends, real estate company financial sheets and keep up with real estate news on interest rate. As interest rates increases and decreases effects the real estate sector.
For a great understanding for REITs fund, check out the guide here by Rocket Mortgage.
Real Estate Funds
Real estate funds are mutual funds that invest in public real estate securities, sometimes including REITs. Real estate funds are more of a long-term investment than REITs and provide their value through appreciation rather than dividends. Real estate funds are managed by professionals, which saves investors the trouble of doing extensive research on where they should put their money. With proper professional helps and fund managers you have your money in the right place to have potential gains in the future.
Remote Ownership
With remote ownership, an investor can own an investment property but rely on and oversee an on-site property manager who will be responsible for upkeep. Many remote investors live out of state and keep tabs on their properties digitally or through phone calls. Remote investing is useful because it allows potential investors to take advantage of areas in higher demand, even if they’re far away.
As all kind of investments, passive real estate investing have benefits and drawbacks. As for now you understand the different types of passive investing. Let's check out some benefits and drawback in this type of investments in real estate.
Benefits and Drawbacks of Passive Real Estate Investing
Benefits
- It requires less effort and attention than active investing.
- It can provide extra income without acting as a landlord or doing physical labor.
- Passive real estate investing offers different investment options depending on your financial goals and risk tolerance
- Allows you to diversify your portfolio without having to buy properties yourself. As to diversify your investments portfolio is very important. Should have a good 60 - 40 framework when it comes to investments.
Drawbacks
- It’s not entirely risk-free, and you could lose money. As in all type of investments, do it when you understand the market. Do it when you have the money, the want and the needs. One of the greatest investors Mr. Warren Buffet once said
"There is no need to risk what you have and need for what you don't have and don't need".
- To expand on that quote, you have to understand your financial goals. And later understand the needs you want with investments. Check out the full guide of real estate investment with The Richest man in Babylon to use a framework.
- Your returns may be lower compared to active real estate investing.
- You’ll have less control over the properties compared to active investing.
Tips, Best Practices, What's Next in Passive Investing
The secret to successful passive real estate investing is to do thorough research and take the necessary steps to become a good investor. This includes selecting the right properties and hiring the right professionals to handle the day-to-day management of your investment. By doing so, you can minimize the stress associated with owning and managing properties, while maximizing your income potential.
If you're considering passive real estate investing, it's important to first evaluate your financial situation. If you're short on cash, focus on building your savings first. Once you have some extra money to invest, putting it toward a passive real estate opportunity can be a worthwhile option.
Passive real estate investments can provide a steady stream of cash flow without requiring the time and effort needed to manage or renovate properties. Although it's not an overnight success story, it can be achieved with the right strategy and a bit of luck.
While this investment strategy may not be suitable for everyone, those seeking a more hands-off approach to real estate investing can benefit from this type of opportunity.
For more great real estate insights, trends and latest news click here.
If you are an active real estate investor and seeking for a free gross rental yield calculator, check out our free ROI calculator down below by clicking the button.
