How to Passively Invest in Real Estate

Feb 06, 2020

What is Passive Real Estate Investing?

What’s the difference between being efficient and just being busy? Why is this difference so important and how can you maximize efficiency? You must be currently swamped so that you are overwhelmed by it all. After all, most busy professionals who want to tap into the world of real estate "just don’t have the time."

These individuals are well aware that this market is very lucrative and offers a chance for great wealth. Nevertheless, they are unable to balance both work life and creating the time to seek an alternative investment. However, to be successful, you must not lose your ability to handle your business with grace, poise, and a firm iron fist.

To continue your seemingly arduous journey into real estate investing, what kind of daily, life-changing decisions do you have to start following when you are far too busy?

Investing in Turnkey Properties

Turnkey real estate investing is a loosely defined investment strategy in which the investor buys, rehabs, and has a property managed through a third-party, usually from a long distance. Their goal is to make the entire real estate investment process as simple as possible, so all you need to do it "turn the key." When it comes to acquiring properties, doing renovations, and managing the property, there’s peace of mind knowing your investing experience is in good hands with a solid turnkey company. A career professional can trust that a turnkey investing strategy will essentially take care of itself, but also provide the flexibility, freedom, and strong returns that you seek.

Though turnkey real estate investing is mostly passive, it can still be overwhelming and stressful. That’s why finding a network of support is extremely important. At times you may feel alone or confused, and every investor should have a ‘team’ that they can rely on. Seeking out and befriending other investors creates a community where you can share ideas and strategies that can assist you along your investing journey.

Real Estate Partnership

In its simplest form, a real estate partnership is exactly what it sounds like: two or more people working together in the real estate industry to accomplish a single goal. Starting any new business venture (and that includes a real estate investing business) can sometimes require more capital than readily available.

The ability to merge multiple talents to form a better, more refined team is one of the major selling points of a real estate partnership. Teaming up with a partner is advantageous because it allows investors to play to individual strengths and the ideal partnership is one where both people bring something different to the table. Investing in real estate requires a considerable amount of time and energy to be successful. Like any investment, it also comes with a certain amount of risk. Forming a partnership, however, can easily help alleviate the degree of responsibilities associated with investing in real estate, while also splitting the amount of risk involved. A partnership will allow investors to share both the risks and rewards associated with real estate investment. For busy professionals, real estate partnerships represent a unique opportunity to take your business to the next level by focusing on the tasks that best suit you and your skill-set. That also means a better chance of turning properties over faster. In the end, forming a business partnership comes down to finding someone with the same goals and visions and someone with attributes that compliment your own. No one said it would be easy — only that it would be worth it.

The cost-obvious negative to real estate partnerships is that instead of getting 100 percent of the equity in any given deal, you only get whatever percentage you negotiated with your partners. There are other ways to raise money for potential deals that allow you to keep the entire deal—such as hard money loans—that you may want to consider. That being said, for larger properties, it is very difficult to get private financing to cover the entire cost of the property.

Investing in Multifamily

Multi-family real estate is also very suitable for property investors who wish to build a relatively large portfolio of rental units. The security and tax advantages that come with investing in multi-family homes is what captures the attention of investors. The best investment property for your portfolio is one that generates large returns. Multi-family homes are the best income property for wealth building.

The entire process of buying, managing, or selling a larger multifamily property is income focused. Most sellers do not get emotionally attached to their properties, buyers come to their offers based on financials, and both parties are usually sophisticated investors. This makes the whole process efficient, consistent, and easy to navigate.

Having multiple sources of rental income is a great way to build equity by repaying the mortgage. This will help you repay it faster and therefore build equity over the property since there is a guaranteed income from multiple sources.

Investing in multi-family homes may require a large amount of start-up capital, but getting approved for a mortgage loan can be simple for commercial multi-family properties. Approving loans for a multi-unit property with multiple tenants is much easier for lenders. This is because multifamily housing reduces the cash flow dependence on one tenant. From the lender’s point of view, there is less risk.

As a busy professional, one of the primary benefits of investing in a multifamily apartment/syndication is it is a completely passive investment for limited partners. As a limited partner, you will receive the benefits of direct real estate ownership without the headaches of the day-to-day management of the property. The most work is identifying which sponsor and investment opportunity to invest in.

Real Estate Investment Trust (REIT)

Real estate investment trusts (REITs) allow individuals to invest in large-scale, income-producing real estate. A REIT is a company that owns and operates income-producing real estate or related assets. Unlike other real estate companies, a REIT does not develop real estate properties to resell them.

REITs generate income, and so 90 percent of that taxable income must be distributed to the shareholders regularly. REITs make money from the properties they purchase by renting, leasing or selling them. As an indirect real estate investment vehicle, the REIT's primary purpose is to invest and hold income-generating real estate assets. This requirement makes REITs prefer acquiring income-generating assets while not preferring high option value properties. The rise of the REIT industry only makes the competition for REIT-suitable assets more intense, which drives up prices and lowers yields on properties. This fact may make management lack the incentive to seek high option value assets that could potentially be ‘home runs' for the REIT shareholders.

Real estate is a great investment option. It can generate ongoing passive income and can be a good long-term investment if the value increases over time. You may even use it as a part of your overall strategy for building wealth. Investing in multifamily properties without day-to-day management responsibilities is bound to be a smarter way for busy people. While every investment in every asset class carries some risk, investing in multifamily apartments has the potential to make smart additions to an investment portfolio.

If you're a busy professional, investing in multifamily will allow you to participate in the benefits of direct real estate ownership. Your investment can be managed by a professional management team with a previous track record of success. Also, with larger properties, you will benefit from economies of scale, and the risk will be spread across multiple units. You will diversify your portfolio outside of the volatile financial markets, allowing you to focus on your career or business.


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