Nowadays, many investors put their money in real estate. A Gallup survey concluded that 35 percent of American investors' preferred means to build wealth is through real estate investing. Only 21 percent of the folks surveyed considered stocks and mutual funds as their choice investment instruments.
There are two ways to invest in real estate: active and passive real estate investment. For busy investors, the latter is more enticing because there’s no need to engage in property management and maintenance. This blog post is intended for those who want to invest in passive real estate. So, take note as you read through!
What is This Type of Real Estate Investment?
A passive investment means that you can earn income without hands-on management of your investment. For example, you can place your capital in mutual funds without making active investment decisions but simply following a market index.
Passive investing in mutual funds is similar to passive real estate investing. You place your money in a real estate venture without directly managing properties. Examples of this are buying stocks of publicly traded real estate companies or placing your capital in Real Estate Investment Trusts (REITs).
In contrast, actively investing in real estate means you buy a property and manage it yourself to generate maximum income. Of course, time, money, and effort are required to be successful in active real estate investing.
Advantages of Passively Investing in Real Estate
Many people now want to diversify their source of income. For busy folks or those working 9 to 5, passive real estate investing is an excellent option to achieve their financial goals. It gives them an opportunity to grow their money while managing other investments or being an employee.
Besides helping you to earn passive income, another benefit of this type of investment is that it can be a stepping stone towards the lucrative world of real estate. As you study passive real estate investing, you’ll receive second-hand learning about real estate in general. There’s also the possibility of meeting old-timers in real estate who can help you delve into active real estate investing.
These advantages are what make passive real estate investing attractive to investors. It doesn’t require too much effort to gain money. However, it also doesn’t mean that you don’t need to research the best ways to navigate this type of investing. Learning is always the key here.
How to Be Successful in Passive Real Estate Investing
What are the things to keep in mind to hit your success in passive real estate investing? Take note of these few tips on how to be successful in this type of investing.
Set a Goal
Venturing into a new profit-earning investment requires setting a goal. Know what you want to achieve through passive real estate investing. It’s crucial to ask questions to know what you want to get in this venture.
Do you want to invest in stocks of publicly traded real estate companies in the long term? Are you planning to earn profits monthly with this type of investment?
Also, you should know how much money you’re willing to place. Keep in mind that passive real estate investing has its financial risks. It would be smart on your part to set a budget to leverage your capital and avoid losing too much money.
Learn How to Diversify
One key to successful investing is learning how to diversify your assets. Relying on a single investment type or class doesn’t give you maximum profits and increases your risk of losing a significant amount of capital.
Diversification, on the other hand, provides you with a broad range of possibilities to grow your money. For example, you can invest in the stocks of multiple real estate-related businesses or REITs. And there are other financial instruments to build your wealth, such as mutual funds and bonds, to broaden your investment portfolio.
Semi-Passive or Fully Passive Investment
There are two options you can take in passive real estate investing. It’s either you can go fully passive or semi-passive. Your choice largely depends on what your goals are.
Examples of semi-passive real estate investing are non-performing notes, turn-key deals, and being a hard money lender. While fully passive real estate investing includes putting your capital in REITs and stocks of publicly traded real estate ventures.
Passive real estate investing is a great option for investors who want to grow their money without the hassle of property management. It’s also an excellent starting point to set your foot into the world of real estate investing, which some newbie investors are intimidated to enter.
Study the ins and outs of this type of investing to increase your chances of success. Better work with a mentor who has extensive experience in passive real estate investing. Lastly, set a financial goal and learn how to diversify your assets.