“Passive real estate investing” refers to an investment in real estate properties where there is no active participation or hands-on effort from the investor.
An active investment is when the investor buys a property and is involved actively in managing, maintaining, repairing, and administering it. An active investor is also the one who spends time researching rental properties before buying them. In passive real estate investment, the individual investor provides money for others to buy, maintain, administer, repair, and lease the real estate property.
Passive investors earn a certain portion of the revenue generated on a monthly basis from the real estate property. Other than receiving the monthly revenue from the property, passive investors are not required to do anything else. When the property is sold, passive investors receive a portion of the sale proceeds that is the percentage equivalent to the initial investment they made in the property.
Different types of passive real estate investment
Buy REIT shares
Many passive investors buy REIT (Real Estate Investment Trust) shares that act as mutual funds. While investors buy the shares, the REIT’s managers manage the funds by investing them in a portfolio of properties.
Real estate crowdfunding
An experienced investor identifies a profitable investment opportunity and handles all the necessary work. However, when the investor does not have the required capital for the project, the finance is secured from individual investors who then get a share of the profit. This can be done through an online public platform known as crowdfunding.
A passive investor can also choose to partner with an active investor through Limited Liability Partnerships. While the active partner does all the work, you can benefit from their expertise to optimize profits from your real estate investment.
What benefits does passive real estate investing offer?
If you have made an informed decision about your passive real estate investments in stable and secure markets, you can be sure of receiving a steady income that is not subject to market fluctuations. The passive income can help meet any sudden financial emergencies, including repairs, hospitalization costs, and so on.
To get optimal returns, passive investors typically look to invest in commercial properties, including commercial developments and apartment communities. Smaller investments such as single-family units are financed by traditional banks financing or by the sole investor.
No banking required
Securing financing to invest in real estate involves negotiating with banks, which can be a challenging process. With passive real estate investments, the active real estate investor is responsible for negotiating with banks and obtaining loan approval.
Relief from day to day operations
The advantages of passive real estate investments extend to the freedom from day-to-day hassles of managing the property, including dealing with tenants, repairs, and trash management. Passive investors are able to enjoy a leisurely retirement with the regular income that the real estate investment generates.
Passive real estate investments that are equity-based yield tax-deferred returns. The depreciation expenses can be used to offset your income, which enables investors to retain more of the income.
Leverage professional expertiseWith passive real estate investing, investors can leverage the expertise and experience of professionals that help you optimize your return on investment.
Hi, my name is Michael Avent. I founded The Multifamily Review in 2020. I’m a Commercial Agent at Northcap Multifamily located in Las Vegas, Nevada. My vision for The Multifamily Review is to be the most trusted resource for all Multifamily Investors and Industry Professionals. We strive to offer the best and most up to date content to our readers and are always open for suggestions. Make sure you sign up to join our newsletter to stay up to date on our latest blog, ebook, and more exclusive content that’s coming your way! The Multifamily Review team and I look forward to building a deeper relationship with you!
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