Investing in real estate offers many benefits, including healthy returns and the opportunity to build equity over time. However, becoming a successful real estate investor requires active involvement to ensure your success. The level of your involvement depends on your investment goals, your risk tolerance, and how hands-on you want to be with your investments. Whether you’re interested in passive real estate investing or want to outsource the management of your rental property portfolio, there are several options available for you.
Passive Real Estate Investing is an investment strategy that limits your involvement with real estate acquisitions, management, and operations by compensating other investors to shoulder these responsibilities on your behalf. This approach allows you to focus on the research and vetting of real estate investments, allowing you to identify opportunities with the greatest potential for high returns and low risk. While passive investing does not require donning a hard hat to check on renovations or schedule the plumber, it still demands some level of active participation, such as reviewing the offering memorandum of a crowdfunding or private equity self-storage deal and regularly analyzing project performance reports.
One of the simplest ways to participate in passive real estate investing is by using online platforms that allow you to pool your money with other investors to acquire income-generating commercial and residential properties. Crowdfunding platforms typically provide investors with the opportunity to purchase shares in a real estate syndicator or funds that will manage the assets on your behalf. As a shareholder, you can earn cash distributions from rent payments, property price appreciation, and an eventual sale of the asset.
Another option for passive real estate investing is to become a landlord and own and manage rental property. Often, investors will purchase rental properties and hire what’s known as a property management company to handle tenant screening and day-to-day maintenance tasks such as collecting rent payments. Generally, property management companies will charge a one-time setup fee as well as ongoing monthly fees for managing the rental property.
Finally, a third way to achieve passive real estate investing is by purchasing Airbnb rentals in touristy areas and relying on rental income to pay the bills. Depending on the area, rental income can be quite significant, especially in touristy markets such as New York City or Las Vegas. However, some of the drawbacks of this investment strategy include a lack of consistency in income and the need to regularly perform maintenance.
Investors with the time and resources can also opt for an active investing strategy, such as acquiring rental properties or renovating and flipping properties. These strategies offer higher return potential, but can also be more risky and involve a higher degree of active work than other passive investment opportunities.