When most people think of real estate investing, they think of what they see on late-night infomercials. They think of fix-and-flips. They think about acquiring a run-down property and then giving it the Chip and Joanna or Property Brothers treatment.
Maybe instead of flipping the property, they decide to hang onto it and become a landlord for the rental income. Either way, whether fixing and flipping or buying and holding, both options require a lot of work.
While direct investing in fixing-and-flipping and buy-and-holds can be rewarding, for most investors, the time, effort, energy, and capital required, along with the idea of fixing toilets, is a turn-off for those looking to tap into the world of real estate investing.
For those looking to tap into the lucrative world of real estate investing, there’s another way—one that doesn’t involve tearing down walls and making midnight furnace calls. That way is passive investing.
Passive real estate investing means investing without the headaches from top to bottom—no searching for and acquiring properties, no weighing financing options, no collecting rent, and no repairs.
In short, passive real estate investing means (source: multipleequity.com):
- Investing at a lower capital amount or barrier to entry (and “owning a piece” of the real estate transaction or project).
- Less involvement in the day-to-day management of the asset (perhaps none).
- Removing personal liability.
- Being able to access assets across the country, not just in your own backyard.
Passive real estate investing allows investors to be hands-free while still receiving cash flow and/or appreciation. By leveraging the expertise of a real estate fund or syndication sponsor, passive investors are able to enjoy the fruits of the labors of others who acquire, maintain, and actively manage a property or properties.
While passive investing entails a sharing of profits, investing passively in multiple assets, especially ones that are leveraged by the sponsor, can ultimately be more lucrative than direct investing.
Besides being hands-free, passive investing offers one distinct advantage over direct investing: no geographic restrictions. While landlords have to be close to their investments in order to deal with tenant issues, the same does not hold true for passive investments.
While fix-and-flippers and landlords are typically restricted to single-family assets in their backyards, passive investors have more options. Modern passive real estate investing and our connected society now allow investors to tap into a wide range of commercial real estate segments, not just single-family homes, with no geographic limitations, with offshore options now becoming more readily accessible.
Here is a summary of the features of passive investing:
Direct investing is not the only option for those looking to dive into the world of real estate investing.
Passive investing is a tool that ultra-wealthy investors have been leveraging for ages to generate multiple streams of cash flow while letting someone else handle the headaches.
