Four Ways to Invest Passively in Real Estate
The opportunity to generate passive income is one of the most attractive aspects of real estate investing. Even if you’re a full-time member of the workforce, investing in real estate is an effective way to generate additional revenue, increase your retirement savings, and set your heirs up for long-term financial success after you’re gone. If you’ve already retired, using your resources to invest in real estate can allow you to live even more comfortably without having to do any extra work. However, it’s important to note that passive real estate investing is a broad term and there are multiple ways to do that. Here’s a look at four of the most effective ways to passively generate income through real estate investing.
Investing in Real Estate Investment Trusts
Also referred to as REITs, real estate investment trusts allow investors to invest in real estate without having to deal with the expense and hassle of finding a property and purchasing it themselves. REITs are attractive to potential investors because they offer such a wide diversification structure. This diversification not only lowers risk, but it also increases appreciation, which are two of the things that most investors look for. REITs are considered a secure investment, as they are governed by the SEC and are traded much like stocks on the New York Stock Exchange. It is important to note that REITs are generally more beneficial to income-oriented investors than those who want to continue to reinvest their dividends for the long-term.
Investing in Real Estate Crowdfunding
Crowdfunding for business ventures has grown in popularity over the last few years, and some investors have found it to be a viable option for real estate investing. In most cases, real estate crowdfunding operates through an online platform that allows investors to view properties and earn profits with only a few clicks. Crowdfunding is appealing because it allows investors to take part in multi million dollar real estate deals by putting in a marginal amount of cash up front. However, as is the case with all investment options, there are also some drawbacks to consider. The biggest drawback is that crowdfunding investments cannot be easily liquidated if you want to pull out of the deal and generate cash. Instead, you have to wait until the investment is sold or an option period opens in which your shares can be bought out.
Investing in Real Estate Syndications
Long before the internet allowed investors to take part in crowdfunding, the general principle that applies to crowdfunding was alive and well in the form of real estate syndicates. In a real estate syndication, the sponsor (also referred to as a syndicator) locates real estate investment opportunities and generates the funds necessary to purchase them from a group of investors. As an investor, it’s important to note that real estate syndicates aren’t necessarily about investing in a certain property. Instead, you’re investing in the syndication. The people who head up the syndication find what they believe to be the best investment opportunities and use your money to purchase it. Your returns are based on how much you invest upfront.
Investing in Turnkey Rental Properties
Finally, investing in turnkey rental properties is perhaps the kind of passive real estate investment that most people think of when they’re looking for ways to passively invest. Obviously, investing in a rental property does require you to find the property, but once the deal is done, you can turn over the daily management of the property to a company that handles rental properties. Investing in rental properties allows you to be as involved as you want to be. Some investors, even those who look for passive income opportunities, like this model as they feel like they have a bit more control over their funds.
Real estate investing is one of the most effective wealth-building tools in existence. Being able to passively generate income through sound real estate investments not only increases your own net worth, but it also puts your heirs in a better position to enjoy financial security for generations to come.