If you don’t know much about real estate investing, you might want to start with apassivestrategy. The benefits of passive investing are that you can do it from your computer. Of course, as you would with any investment, you need to do your research and due diligence, but you don’t need to visit or manage any properties physically.
Invest in a REIT (real estate investment trust)
A REIT (Real Estate Investment Trust) is a corporation (actually a trust) that’s formed to use investors’ money to acquire, manage and sell income-producing properties such as shopping malls, commercial buildings, and health-care facilities. REITs are required by law to distribute 90% of its taxable profits annually to shareholders. This comes in the form of dividends, often quarterly. Like investing in a real estate mutual fund, your REIT investment is professionally managed, SEC-regulated, and highly liquid. (Shares can be bought and sold on the major stock exchanges.)
Invest in Real Estate Mutual Funds
Real estate mutual funds are a popular way to add real estate diversification to your portfolio without actually owning property or understanding much about buying, selling, and managing specific properties.
- Your investment is pooled together with others, and you’re issued shares of the fund. All purchases, activities, and disbursements are overseen by a fund manager.
- Analytical and research information is done by professionals. You simply buy and sell shares much like you would any other mutual fund on the stock market exchanges.
REITs and real estate mutual funds are the most passive ways to invest in real estate, and make an excellent option for someone who only wants portfolio exposure to real estate and is not looking for a side job.
Invest in Properties via Real Estate Crowdfunding
Crowdfunding Real Estate investing can be very passive as well. But the due diligence you should do is more involved than simply buying shares of a mutual fund or REIT.
- Crowdfunding platforms provide an online marketplace for investing in a variety of real estate opportunities.
- There are hundreds of real estate crowdfunding platforms to choose from.
- You can invest in everything from high-quality real estate loans to single-family homes via crowdfunding.
Crowdfunding sites allow individual investors entry into bigger deals (both residential and commercial) that were previously available only to those with substantial amounts of money to invest. Like investing in mutual funds or REITs, many crowdfunding deals offer very affordable minimum investments. The biggest advantage crowdfunding provides is that you can invest in specific properties and exclusive deals with very little money.
While online crowdfunding platforms make investing super easy, many platforms require investors to be “accredited” (an individual with an annual earned income exceeding $200,000 and a net worth greater than $1 million excluding the person’s primary residence). And for a good reason. You are responsible for doing thorough due diligence. So, you must analyze the documents provided. You also need to find and study any relevant information not provided. And don’t forget to research the crowdfunding management personnel and policies.
Real estate crowdfunding is a passive investment; you won’t have to quit your job and become a landlord, but you can still reap the rewards of real estate investing. One of the crowdfunding services that shines is Crowdstreet, which allows you to invest in real estate with as little as $25,000.
Purchase Pre-Vetted Rental Properties
Another alternative to traditional real estate investing, is a platform called Roofstock. You can use this platform to purchase pre-vetted rental properties. These are “turnkey” opportunities — you don’t need to do any rehabbing or fix any toilets in the middle of the night. Simply use the Roofstock database to select and purchase a rental property that is already cash-flow positive.
Invest in Real Estate Limited Partnerships
Real Estate Limited Partnerships (RELPs) are another way to invest passively. Because some real estate investments require a large amount of money — building a shopping mall, for example — partnerships are a common way to raise funds needed.
- A RELP is an entity formed to develop or purchase and hold a portfolio of properties, typically for a finite number of years.
- Experienced property managers or real estate development firms run these, and outside investors provide financing for the real estate project as limited partners.
- As a limited partner, you would receive periodic distributions from income generated by the RELP, and you’d receive a more substantial payoff when the properties are sold, and the RELP is dissolved.
- While being a limited partner is a passive activity, your investment is typically very illiquid.
- RELPs are typically private investments and not sold on the stock market exchanges, Nor do RELPs widely promote their available deals. Due diligence is critical.
Join Real Estate Investment Groups
Real Estate Investment Groups are sort of like small mutual funds for rental properties.
- A company will buy or build some apartments and then allow investors to buy them through the company.
- As a single investor, you can own one or multiple units.
- The company operating the investment group collectively manages all the units. It takes care of maintenance and operations in exchange for a percentage of the monthly rent.
This is passive in that investors don’t worry about placing tenants or managing their units. But you must do your due diligence before investing. This includes verifying all fees, services, and tenant screening processes, as well as the integrity and experience of the group’s managers.