The Busy Professional’s Guide to Passive Real Estate Investing

Passive real estate investing is perhaps the best way to earn excellent returns on your money and gain financial freedom. But you won’t hear much about it from the so-called “experts” who’ve soured most people on the idea of investment. Fortunately, there are ways for busy professionals to make decent returns in real estate without spending all their waking hours doing it.

Passive real estate investing is a little different than the traditional buy-and-hold investing strategy of buying a property, renting it out, and collecting the monthly rent (although it can include this). Passive real estate investing involves collaborating with other investors who have more experience to invest in larger projects than you could on your own.

PASSIVE INVESTING BLUEPRINT FOR BUSY PROFESSIONALS IN 2022

Why Real Estate?

There are a lot of reasons why people invest in real estate. And for many of these reasons, you can find an alternative investment that promises the same benefits. But real estate investing does offer some unique advantages that are difficult to replicate with other investments:

Long-term appreciation: Over time, the value of land and structures tends to increase. It’s not guaranteed — we’ve all seen markets tank — but over a long enough period, historical data shows us that real estate is one of the best-appreciated asset classes.

Leverage: If you make an investment with very little money down, you get to realize most of the return on your initial investment immediately, while maintaining ownership of that initial investment. That’s leverage. Other investments allow you to use debt as well, but it’s rarely as significant as the leverage available in real estate.

Cash flow: A mortgage allows you to make monthly payments that are lower than a full market rent payment. That “extra” cash flow goes straight into your pocket each month. This is more important in some markets than others, and it’s less common than it used to be after a decade of rising home prices. But it can be done!

Tax benefits: There are plenty of tax benefits to passive investing as well. Passive income is considered taxable income, but long-term capital gains (profits) are not taxed at all. (Short-term capital gains — profits made off a sale of an asset held less than one year — are taxed at lower rates.) So you can earn income from real estate and then spend that money on something else (or invest it in other assets) without incurring any tax liability at all.

What Is Passive Real Estate Investing?

Passive real estate investing is an investment strategy that involves owning an interest in the property, such as an apartment building or a housing development, without being actively involved in the day-to-day management of those properties. Generally speaking, the only active duty required by investors is to make decisions about what properties they invest in and how much they invest.

As a passive investor, your return on investment comes from profits generated by your ownership interest in a property or portfolio of properties. The profits can come from rents paid by tenants who occupy units owned by you or from appreciation in value over time (or both).

With passive investing, you have more options to choose from:

Shared equity agreements: In this arrangement, you provide financing to an investor who buys a property and rents it out or flips it for profit. Shared equity agreements take many forms and can involve different types of compensation for investors

Syndications: A syndication is when several investors pool their funds together to purchase a larger property such as an apartment complex. You’ll get your share of the returns in proportion to how much you invest.

Real estate investment trusts (REITs): REITs are companies that own and operate commercial properties, such as apartment buildings or office complexes. REITs give investors access to professionally managed property portfolios with diversified risk and lucrative returns. They’re sold on public markets like stocks and traded throughout the day at market prices.

Crowdfunding: In this model, smaller investors work together to buy rental properties. Investors may get regular disbursements from any profits or rent payouts from tenants in the building.

Investing Locally vs. Remotely.

There are two main types of passive real estate investing: local and remote investing. Both avenues come with their own set of benefits and challenges. Here’s what you need to know about each one.

Investing locally has the advantage of allowing you to visit your investment property, look it over and make sure everything is working properly. You can meet the tenants and their needs in person. If something breaks, you can call a repairman yourself so that it gets fixed quickly.

But there are also disadvantages to local investing. If you’re living in a city like New York or San Francisco, local real estate investment opportunities are very expensive. You can buy a house for $80,000 in Detroit, but it will cost you $800,000 in San Francisco or New York City.

If you want to invest remotely, you need to be well-versed in remote property management. You will have to hire someone locally who can be trusted to deal with issues like maintenance requests and rent collection. You will have to find a way to make sure the tenants are taking care of the investment property.

When dealing with out-of-town properties, your best bet is to hire a property manager who has experience with remote investing. The rent they take as payment will be worth it if they help you avoid tenant problems and handle issues that arise with your investment property as soon as they happen.

The Tax Benefits of Real Estate Investing.

Owning real estate offers numerous tax benefits including depreciation, mortgage interest, and operating expenses (including repairs and maintenance). The depreciation deduction is especially valuable as it allows investors to deduct the purchase price of their asset over a number of years (27.5 years for residential property and 39 years for commercial property).

If you’re in a high tax bracket and have a large mortgage, these deductions could add up to thousands of dollars.

However, it’s important to remember that real estate investment profits are taxable as well. If you sell an investment property for a profit, it will be treated as capital gains income, which generally has a lower rate than regular income. However, if you’ve held the property for less than a year before selling it, the profits will be taxed at your regular income rate, which may wipe out some or all of those tax benefits.

PASSIVE INVESTING BLUEPRINT FOR BUSY PROFESSIONALS IN 2022

How Can You Start Investing Passively?

Here’s how to get started with passive real estate investing:

Pick the right type of property. There are several types of properties that are well suited to passive investing: single-family homes, multifamily properties (apartments or duplexes), storage units, mobile home parks, and even commercial properties like office buildings or strip malls. Each has its own pros and cons, but the important thing is that its management can be outsourced to a third party if you choose not to do it yourself. For example, a storage unit facility just needs a manager who can handle the day-to-day operations and collect the rent each month from tenants.

Choose the right partner. Your partner in this venture can be another individual investor, a corporation partnered with investors (often called

The Benefits of Passive Real Estate Investing

For many, passive real estate investing is appealing because it allows them to invest in real estate without spending a lot of time on it. This can be especially helpful for people who don’t have any experience or knowledge about managing or owning rental properties. Some of the benefits include:

No time commitment. This is one of the biggest reasons why passive real estate investing is appealing. By hiring a property management company, you are able to sit back and relax while someone else handles all the details for you. The managers will deal with collecting rent, finding new tenants, repairs and maintenance, advertising vacancies, and anything else that needs to be taken care of.

Diversification: Diversification is important because it allows you to spread the risk of loss across many different investments. In real estate, diversification means buying different types of properties in multiple locations and financing them with different types of loans. By spreading your money around, you reduce the risk that all your investments will tank at once — which could happen if there are problems with one particular market or one type of real estate product.

Income potential is high. There is no cap on what you can earn as a passive real estate investor — it all depends on your situation and goals! With the right investments, you can earn an annual yield that’s comparable to stock market returns — without the same level of risk or volatility.

The Real Estate Market & Your Timeline

Everyone has different goals and timelines when it comes to investing. Investing in real estate is a great way to start building up your wealth, but if you’re unsure about how long you want to commit to an investment, the market may seem like a huge risk. Before you can pick the right property, you should know what type of investment fits your timeline.

Here are some tips for finding the right real estate investment based on your timeline:

Buy rental properties – This means you purchase a piece of real estate with the intention of renting it out long term. You can manage the property yourself or hire a property manager to maintain the day-to-day operations of the rental property.

Flip houses – This is where you buy a piece of real estate, fix it up, then resell it for a profit. Typically, this requires some experience with home improvement projects and some capital to get started.

Invest in REITs – REIT stands for Real Estate Investment Trust. A REIT is an investment vehicle that allows you to pool your money with other investors and invest in large commercial properties like apartments, office buildings, warehouses, etc.”

Conclusion

Whether you already have a high income and savings or are just getting started, passive real estate investing offers opportunities for all levels of investors. And because it’s passive, it can still provide market-beating growth even with your limited time resources. At the very least, it’s worth investigating further. The big question will be: which one will you choose?