Passive Real Estate Investing is a hands-off investment strategy that allows investors to earn income from rental property and other real estate assets without occupying the properties or hiring a general partner/investment manager to oversee the day to day management of the asset(s). In exchange for their capital, passive investors receive cash distributions from the property’s rental income, as well as potentially benefit from the appreciation of the asset’s value and/or a successful sale.
Passive investing is a great alternative for those who aren’t ready or able to commit the time and effort that active real estate investments require. However, it’s important for investors to carefully evaluate their financial situation and risk tolerance when determining whether this type of investment is right for them.
There are many ways to invest in passive real estate. For example, some real estate crowdfunding platforms allow investors to pool money together in order to purchase income-generating commercial and residential properties. This is a particularly beginner-friendly way to invest in real estate, as it generally requires no accreditation and invest minimums are typically quite low. Other forms of passive real estate investment include REITs (Real Estate Investment Trusts) and private equity real estate investments that are structured as limited partnerships.
One of the most popular forms of passive real estate investing is buying and leasing out a single-family rental home. By purchasing and leasing out a home, you’re essentially creating a business that generates income from renting rooms to tenants who stay for an extended period of time. This type of passive real estate investing offers an excellent way to generate a steady flow of cash flow, and it’s also possible to make significant tax benefits.
Another popular form of passive real estate investing is purchasing a remote rental property. In this strategy, a real estate investor will partner with a deal sponsor or property manager that has the relationships, expertise, and resources to identify, purchase, and manage institutional quality commercial assets. In return, the investor will take a fractional ownership interest in the project and receive regular cash distributions from the property.
A more involved version of this passive real estate investing approach is buying a turnkey rental property and then hiring a professional to handle the day to day management of the property. This type of passive real estate investing involves a higher upfront cost, but it can be an effective way to generate a steady stream of passive income.
Lastly, some passive investors choose to buy Airbnb rentals in popular tourist destinations, a type of real estate that requires very little maintenance and management once it’s leased out to guests. However, this is a more risky form of passive real estate investing since a bad tenant can cause serious damage that may require costly repairs and/or an eviction process. The good news is, that if you’re smart about screening tenants and have a reliable property management company, this can be an excellent way to generate passive rental income.
