Passive Real Estate Investing: Everything You Need to Know

Because of its convenience, passive real estate investing is becoming incredibly popular amongst new investors.

Unlike traditional forms of real estate investment, passive investing allows folks to step back while somebody else takes care of the work for them. If that sounds interesting to you then you’re in luck because we’ll be discussing a number of passive income real estate options in this post.

But before we dive into the details, let’s cover the basics first.

Table of Contents

Active Vs Passive Real Estate Investing

There’s a lot of talk about active vs passive income but how often do people compare active investing with passive investing? Here’s a quick rundown that’ll help you decide between the two:

Active Investing

As the name suggests, active investing is when you purchase and manage properties on your own for rental income. Depending on how committed you are to the project, some investors may also build new homes or flip houses to sell for profit. Unlike passive investors, active investors are involved in every step of the way, whether it’s managing finances to supervising tenants.

Since active investing requires a more hands-on approach, it can be quite time consuming for some people. Not to mention, you’ll have to keep an eye on multiple factors. However, you can significantly make things easier by reaching out to a management company.

The most notable advantage of active investing is that you can maximize your profit margin and have more control over real estate procedures.

Passive Investing

Passive investing is a great option if you’re not too thrilled about dealing with the everyday hassle of real estate. Investing in mutual funds or real estate investment trusts (REITs) are both incredibly popular ways to earn passive income. However, since somebody else managing the whole process, you may not have much say when it comes to the organization’s investment policies.

Depending on what real estate option you opt for, the minimum investment required can vary. If you can afford it, opt for private placement offerings, this usually requires a hefty investment of $50,000 or more. Alternatively, you can also purchase publicly traded REITs which is comparatively inexpensive.

Passive Real Estate Investing Options

To get you started, we’ve compiled a list of passive real estate investing options that we’re sure you’ll benefit from! Note that every option offers its own list of pros and cons so make sure you’ve examined all your options carefully. Here goes:

1. Passive Income Rental Property

Thanks to passive income rental property options, you can now invest part-time. All you have to do is hire property management and a contractor to take care of things and you’re good to go. This’ll allow you to keep your regular nine to five job whilst making money off your property.

However, hiring people doesn’t mean you can completely cut yourself out of the project, keep tabs on everything when you get the time.

2. Invest in Turnkey Rental Properties

Investing in Turnkey Rental Properties is another great way to earn passive income. These properties require minimal supervision and are managed by property management companies.

Either hand pick properties or hire someone to get the job done for you. Depending on the condition of a property, you may hire a contractor to conduct minor repairs and fix up the place. Once that’s taken care of, you may reach out to a reputable property management company to collect rent, manage the property and handle administrative tasks for you. Yes, it’s as simple as that!

While it does require quite a hefty investment (you’re basically hiring people every step of the way), leveraging turnkey investment properties is a great way to earn passive income. Since most of the work will have been done by professionals, all you have to do is collect monthly checks from tenants.

3. Real Estate Investment Trusts (REITs)

If you’re too tired or busy to deal with the day-to-day hassle that comes with managing property, consider opting for Real Estate Investment Trusts (REITs). REITs is a cool passive investment option, you can invest in REITs by investing in shares on an open exchange. Some REITs are public while others can be private.

The most notable advantage of investing in REITs is that investors are paid 90% of taxable income as dividends which is a pretty good deal.

Another cool advantage of REITs is that it allows investors to benefit from diverse real estate portfolios. This makes REITs a popular choice for folks who don’t have direct investment access or don’t want to spend a hefty amount on active real estate ownership.

Considering there’s not much work involved, investing in REITs offers a pretty good return. However, on the downside, REIT strongly relies on public market which can make it susceptible to market volatility. This correlation causes it to take a step back from other real estate investment options that offer inflation hedging benefits.

4. Out of State Property Investment

If you have a bit of experience, consider investing outside your neighborhood. While this kind of passive investment comes with its own challenges, it’s a safer option if real estate is pricier where you live. You can choose to either buy or rent out this property if you’re eager to diversify your holdings.

Most people invest in out of state property because of higher return on investment (ROI). But before you deep dive into unfamiliar territory, don’t forget to consider factors such as mortgage rates, housing regulations etc as all these factors will greatly contribute to the property’s ROI.

5. Crowdfunded Real Estate

Crowdfunding real estate is another cool way to generate passive income. While rental property seems like a safe bet for most people, it might not be the most economical option for everybody and that’s precisely why you should opt for a crowdfunding platforms such as Fundrise.

The best thing about crowdfunding real estate is that you don’t have to invest a hefty amount, making it a suitable choice for practically everybody.