How to be a hands off Real Estate Investor
Real estate is one of the most unique investment opportunities that we have access to. Not only are there various types of real estate that you can invest in, but you can also be as involved as you want to be in your investment. When you buy stock in a publicly traded company, your money is at the mercy of the people who run that company. When you invest in real estate, you can choose to be a passive investor and let your money do the work or you can take on a large portion of the work yourself in order to maximize your investment. While both options have their own list of pros and cons, there is a lot to be said for passive real estate investing.
The Benefits of Being a Hands-Off Real Estate Investor
The biggest benefit of being a hands-off real estate investor is that once you are invested in a property and it has a tenant, you can make money in your sleep. Unless you take on the property management responsibilities yourself, the money that you spend on property managers and property maintenance is an automatic monthly expenditure that continues to generate a profit. You’re not obligated to do anything, and your initial investment continues to produce a positive return on investment.
How to Become a Hands-Off Real Estate Investor
There are plenty of options for real estate investors who want to be hands-off, or “passive” in their investment. Rental income, whether residential or commercial, provides the best chance for passive real estate investing since there is no obligation to worry about selling properties. Fortunately, there are several avenues for hands-off real estate investing that focus on rental properties.
The term “crowdfunding” became popular in 2006 when an entrepreneur was looking for a creative way to fund his business idea. Over the years, crowdfunding started working in other industries, including real estate investing. Today, there are numerous reputable platforms that allow real estate investors to pool their money and invest in a property. Crowdfunding properties include apartment complexes, single family homes and other commercial properties.
Hands-off investors love the idea of crowdfunding because it can be done with a few taps on the screen of your mobile device. It is also an attractive option because many of those platforms require a minimal initial investment. You can also diversify your portfolio because the crowdfunding platforms allow you to invest in a multitude of asset classes in different regions.
Real estate investment trusts, or “REITs” are essentially mutual funds that only invest in real estate. The primary difference between investing in a REIT and a crowdfunding investment is the initial barrier to entry and the number of properties that are offered at once.
There are different types of REITs. You can choose between publicly traded REITs which are registered with the SEC and exchanged publicly, much like the New York Stock Exchange and privately traded REITs which are also governed by the SEC but are not traded publicly. Finally, there are privately traded REITs which are neither registered with the SEC nor traded on exchanges. Each type of REIT has its own list of pros and cons, so you should educate yourself on each type.
REITs are typically lower risk investments because they include a large portfolio of properties in exchange for a single investment. Not only do REITs deliver an annual dividend to investors, but they also offer long-term appreciation of your initial investment. Since the REIT is managed by a team of industry professionals, there is no work for you to worry about, creating a truly hands-off investment.
Real Estate Syndication
If you’re looking for a way to be a hands-off investor, you can also check into the world of real estate syndications. While the concept of a real estate syndicate was only available to the super rich for years, laws that changed in 2012 made it possible for investors who have not yet become wealthy to take part in a real estate syndicate of their choice.
Real estate syndication works as an investment between a sponsor and a group of investors. The sponsor is responsible for finding the investment property and is ultimately responsible for the day-to-day operations of the property. The sponsor or general partner, who puts up anywhere between 5% and 20% of the purchase price of the property is also responsible for finding investors to provide the rest of the needed funding along with securing financing of the loan for the property.
Similarly, to how other investments work, syndication profits are then paid to the investors when the investment matures. The percentage of the profits that you are entitled to is tied to the amount that you initially invest. Since you are not responsible for any marketing, maintenance or other work associated with the property, syndication provides a great opportunity for those who want to be a hands-off investor.
If hands-off real estate investing sounds like the path you want to take to building your investment portfolio, you should educate yourself on all the platforms and companies that offer such options. Understand any minimum investment requirements and look at the track record of success of any crowdfunding companies, REITs or real estate syndicates that you may be interested in. If none of those seem like the route you want to take, invest in a property and then allow someone else to manage it. Your level of commitment is completely up to you.