Andrew Carnegie, one of the richest men in American history, famously said, “Ninety percent of all millionaires become so through owning real estate. The wise young man or wage earner of today invests his money in real estate.” Carnegie said it over 100 years ago but it’s still solid advice even today.
Most current American millionaires still derive the majority of their wealth from real estate investing, through real estate stocks, private ownership and more.
If you want to invest capital in real estate but don’t want the hassle of active management, passive real estate investments might be right for you.
Passive Real Estate Investing
What exactly is passive real estate investing? It means that you don’t play an active role in the real estate business that you invest in. Stock investing is another type of passive investing. As a stock owner, you don’t play an active role in a business’ daily operations.
But don’t be tricked into thinking that passive real estate investing is easy. Before you decide to passively invest in a property, you need to do your research. This means look at the current tenants in place, the fundamentals of the area, current developments underway and any other factors that could affect market prices and rental income going forward. These are all things you should do before you commit capital.
Evaluating opportunities comes with a time commitment when done properly, but this will protect you from investing in losing properties. As investors build up a portfolio, they often aggregate their income and holdings into quarterly and annual reports and financial statements so they can objectively evaluate investing decisions.
When to Invest in Real Estate Passively
Here are some signals that it may be the right time to invest in real estate passively. You may be:
- Interested in investing in real estate but don’t want to deal with the headache of active management (including sourcing properties)
- Looking for a stream of income from your investments
- Comfortable with a low risk tolerance
- Looking for a diversified way to invest in real estate
- Interested in a wide range of properties.
- Willing to tap into institutional-grade properties
Why Invest in Real Estate Passively
Passive real estate investing is a mechanism with the power to make huge returns in your portfolio with very little effort. Some of the top reasons to invest in real estate passively are:
No Banking Required
Negotiating with banks to get financing is a challenging process you can avoid through passive real estate investing. These investments are tied to a professionally-run private real estate investment business. They deal with the banks so you don’t have to.
Hands-Off Real Estate Investing
Passive real estate investing is a hands-off endeavor. The day-to-day management responsibilities are delegated to others, which means you won’t need to worry about tenants or minute details like trash pickup.
In equity-structured investments, passive real estate permits tax-deferred cash returns. The pass-through potential benefit of passive real estate investing lets your share of depreciation expenses offset your income. This lets you keep more of your earnings.
Leverage Professional Experience
Passive real estate investing lets you leverage the experience (and expertise) of professionals. These investors have a depth of education in certain sectors that will help you continually build your knowledge base.
Generate Returns Passively
Most importantly, with passive real estate investing, your money works for you while you sleep. These investments generate passive income through dividends while also appreciating in asset value.
Best Passive Real Estate Investing Platforms
You can choose from a number of real estate investing platforms if you prefer passive real estate investments. This section reviews 4 of the best options out there. Whether you are interested in real estate crowdfunding or want to understand how to invest in REITs, these platforms have you covered.
Diversyfund is a crowdsourced passive real estate investing platform. The company invests in multifamily properties with solid rent payment histories, renovates these buildings and pays out returns to investors. Its primary objectives are to increase cash flow and resale value.
Diversyfund’s Growth REIT gives investors access to multimillion-dollar real estate assets. The platform is open to investors globally and the minimum amount required to purchase equity is $500. Another benefit of Diversyfund is there are no brokerage fees. You also don’t have to be an accredited investor to participate.
However, the downside of this product is that investors are only able to access “blind pool” investments. You won’t be able to select (or deselect) specific properties in your portfolio. For more information, check out our Diversyfund review.
Crowdstreet is a passive real estate investing platform that specializes in commercial real estate. You must be accredited to use Crowdstreet. To be accredited, you must meet the net worth requirement ($1,000,000) or income requirement ($200,000 each year for the last 2 years). The platform lets users invest directly in commercial real estate projects. Crowdstreet is a marketplace, not a middleman (like a brokerage firm), where you can select the best options that fit your investment needs.
A wide variety of investments are available on the platform, including office buildings, storage facilities and family living spaces. It’s free to view investments on the Crowdstreet platform. There are many one-of-a-kind opportunities available on the platform, including funds, tailored portfolios, and individual deals like self-storage facilities or major retail developments. Investors are able to commit capital to both equity and debt offerings.
One downside to Crowdstreet is that investors are limited to the options available on the marketplace and it can be expensive to build a diverse portfolio. However, the platform supports high-quality education materials that can help you figure things out.
Roofstock is a real estate marketplace and registered broker that focuses on single-family rental properties. Roofstock connects buyers and sellers directly on its platform. The properties are selected by a qualified home inspector. Anyone can view the available properties on Roofstock.
One huge benefit of Roofstock properties is that they come with a rental income guarantee for vacant properties. This means if you buy a property on the platform and use a guarantee-eligible property manager to search for tenants, Roofstock will pay you 75% of rent in the event you cannot find tenants.
The platform provides financial data on each property. Financing (and cash) options are available when you make a purchase through Roofstock. The platform beats the competition when it comes to fees.
The downside of Roofstock is that you’re the sole owner of the property and responsible for funding repairs and maintenance yourself. In addition, investments require down payments and the platform only supports single-family homes.
Streitwise is a REIT that focuses on commercial real estate. That means that it acts as an investment trust that actually operates income-producing real estate and delivers pass-through income. Your minimum required investment is $1,000. The platform specializes in generating high-yield returns through investing in low-risk commercial real estate rental properties. Streitwise is known for consistently delivering quarterly dividends.
The platform also has a transparent fee structure (and low fees) and a convenient and user-friendly interface. Streitwise makes diversifying your real estate investments easy. Streitwise makes investments in markets with growth potential that have low risk.
However, Streitwise is a young and mostly unproven company. There is limited availability in its portfolio and the platform has limited technology capabilities.
Passive Real Estate Investing Overall
Passive real estate investing can be a fit for almost everyone. It requires a good deal of upfront research but can pay you dividends over the lifetime of your investment.
If you want to join the ranks of millionaires who hold a large portion of their wealth in real estate, now is the time to take action. Choose a platform that fits with your specific investment strategy and start working on your first deal. Do the upfront work now and you can reap the benefits for years to come!
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