Real estate is a solid investment for those looking to diversify their portfolio with something that can provide steady income and build equity over time. But the term “Passive Real Estate Investing” can be deceiving for new investors, as passive income real estate requires significant planning and research.
One of the most common ways to generate passive income is through rental properties. Those who play their cards right can create a stable stream of revenue and even earn capital appreciation over the long-term. However, renting out a single property to tenants isn’t without its risks. For example, if you’re not careful to screen your tenants thoroughly, you could end up paying more in the long run through costly repairs and evictions.
Another popular form of passive income real estate is through a private real estate fund or a real estate investment trust (REIT). These professionally-managed funds can invest in both residential and commercial properties and can offer an attractive yield while providing tax benefits. They can also help you avoid the hassle of managing a single property on your own.
Passive investors may also choose to partner with a firm that specializes in real estate syndication, which is similar to crowdfunding, in exchange for fractional ownership of institutional-quality commercial assets and periodic distributions of cash. This is a more hands-off approach, but investors must do their own due diligence to ensure that the investment is a good fit for their investment goals and risk tolerance.
Lastly, investors can put their money to work in REITs and other publicly traded real estate-related companies that don’t manage property but make a living off of the space they occupy or own. These include land developers, such as Howard Hughes Corporation or Realogy, retailers with a major real estate presence like Macy’s, and many others.
While passive investments can be a great way to generate financial returns with little or no effort on your part, it’s important to remember that they are not completely free of risk. There’s always a chance that property prices will decline or that tenants won’t pay their rent, and it’s essential to be aware of the potential for these risks before making an investment.
Fortunately, it is possible to start investing in passive income real estate with relatively small amounts of capital. It’s not unusual to find a REIT or crowdfunding deal that allows you to invest in income-generating properties for just a few thousand dollars. In addition, these investments can give you exposure to types of property that would be difficult to purchase outright unless you had tens of thousands of dollars to spend. This can be especially beneficial if you’re interested in a specific type of asset class, such as self-storage facilities or a high-rise apartment complex, which are often out of reach for many investors.