Are you a property owner looking to increase your income and put most of that money into savings or investments? Now is the perfect time to learn about passive real estate investing. If you have some experience investing in stocks, perhaps this concept is straightforward for you.
The principles of passive investment are pretty simple: it’s just like buying an investment, but instead of spending your own money on it, all costs associated with the purchase are paid by someone else. This can include individuals who want to buy property at an auction or banks that lease out space.
What is passive real estate investing?
Passive real estate investing is a term used to describe acquiring property, typically commercial or residential, with money borrowed from outside sources. Passive investors are most often organized as corporations or limited liability companies, which allows the investor to borrow funds using debt. The borrowing costs are much lower than the investor would pay if they were to borrow their own money and be tax-deductible.
How many different types of passive real estate investments are there?
There is no limit on how many passive investments you can make. One of the great benefits of passive real estate investing over other kinds of investment is that you can buy and sell properties as often as you want, unlike stocks or bonds. However, this also means that your portfolio is less stable than if you had invested in one property only.
- Real property:
This type of passive investment usually takes the form of real estate investments. Even if you don’t want to be a landlord, you can easily rent your property. For example, instead of buying a house and living in it yourself, you can buy a place to rent and use the rent money for your living expenses.
- Property management:
This means that you are not buying or selling properties but rather managing existing properties for investors who already own them. For instance, someone might have an apartment they want to lease out on their own but with little success.
In this situation, you are funding other investors or business owners who have plans to build a property or buy one from someone else. As an investor in the project, you would get money back with interest and eventually receive a percentage of the property for yourself.
- Commercial Real Estate:
This is similar to financing, but the businesses that one invests in with commercial real estate are usually more extensive and more established. An investor might look to provide short-term funding to get a slice of a significant asset at reduced prices (e.g., one might create commercial mortgages on large office buildings).
Passive real estate investing: What are some of the benefits?
One of the main benefits of passive real estate investment is diversification. There is no rule stating that you can’t hold multiple properties for passive income or that you have to buy and sell your properties regularly. You can have a diverse portfolio spread across various countries, states, and even continents.
Another benefit is that it is possible to make cash flow from your investments without needing to be directly involved in their daily management as an investor. Instead, you can employ managers and staff who will deal with the day-to-day running of these properties, freeing you up to pursue other goals.