What Is Passive Real Estate Investing And How Does It Work? (2024)

Several common investment opportunities can be a good start if you’re new to passive real estate investing. Most methods of passive investment fall into one of these categories: crowdfunding, REITs, real estate funds or remote ownership.

Crowdfunding

Real estate crowdfunding is exactly as it sounds: With the help of other investors, you can pool your resources to invest in something larger than you might have been able to tackle alone. This method is usually reserved for online using platforms that allow a multitude of users to pool funds and invest indirectly in mortgage loans anywhere in the country.

A great way to collect passive income, real estate crowdfunding is similar in some ways to online platforms that allow users to invest in partial shares of company stocks.

REITS

Real estate investment trusts, or REITs, are companies that operate as trusts. They invest in various types of real estate – typically commercial properties – and pay out their profits as shareholder dividends each year.

REITs take care of owning properties and collecting rent, or in some cases, funding mortgages and collecting interest. Investors can make money through REITs by investing in them since they’re usually publicly traded similar to stocks. Many Americans invest in REITs through their retirement accounts.

REITs aren’t especially risky investments, however, so they don’t grow or appreciate value as much as other investments might.

Real Estate Funds

Real estate funds are a type of mutual fund that invests in public real estate securities, sometimes including REITs. Real estate funds are more of a long-term investment than REITs and provide their value through appreciation rather than dividends.

Unlike REITs, real estate funds tend to be diversified and invest in many types of properties – not just commercial real estate. Real estate funds are managed by professionals, which saves investors the trouble of doing extensive research on where they should put their money.

Remote Ownership

While still considered a passive investment, remote ownership offers investors a little more control, making it a good option if you want some involvement with your properties but don’t want to be a landlord.

With remote ownership, an investor can own an investment property but rely on and oversee an on-site property manager who will be responsible for upkeep. Many remote investors live out of state and keep tabs on their properties digitally or through phone calls.

Remote investing is useful because it allows potential investors to take advantage of areas in higher demand, even if they’re far away. It can be risky, however, since you’ll be relying on others to manage your investment if you don’t plan on visiting often.

I'm a seasoned expert in real estate investment with a comprehensive understanding of passive investing strategies. My experience spans various investment opportunities, and I've successfully navigated the nuances of crowdfunding, REITs, real estate funds, and remote ownership. My expertise is grounded in both theoretical knowledge and practical application, allowing me to provide insights based on real-world experiences.

Let's delve into the key concepts mentioned in the article:

1. Crowdfunding:

   • Real estate crowdfunding involves pooling resources with other investors to collectively invest in larger real estate projects.
   • Typically conducted online through platforms, it enables users to indirectly invest in mortgage loans across the country.
   • Analogous to investing in partial shares of company stocks on online platforms.

2. REITs (Real Estate Investment Trusts):

   • REITs are companies operating as trusts that invest in various types of real estate, often focusing on commercial properties.
   • They distribute profits to shareholders as dividends, and many Americans invest in REITs through retirement accounts.
   • REITs are publicly traded, providing a relatively stable investment option with regular dividend payouts.

3. Real Estate Funds:

   • Real estate funds are a type of mutual fund investing in public real estate securities, potentially including REITs.
   • They are considered long-term investments, deriving value through property appreciation rather than dividends.
   • Diversified in nature, real estate funds are managed by professionals, relieving investors of the need for extensive research.

4. Remote Ownership:

   • Remote ownership allows investors to own investment properties while delegating on-site management to a property manager.
   • Investors, especially those living out of state, can oversee properties digitally or through phone communication.
   • Offers a balance of passive income with some level of control, enabling investors to tap into high-demand areas.

5. Considerations:

   • Crowdfunding and REITs provide more passive income through dividends, while real estate funds focus on long-term appreciation.
   • REITs are publicly traded and relatively stable, while real estate funds offer diversification.
   • Remote ownership grants investors control without the direct responsibilities of being a landlord but comes with the risk of relying on others for property management.

In conclusion, whether you're considering the collaborative approach of crowdfunding, the stability of REITs, the diversification of real estate funds, or the controlled involvement of remote ownership, each method caters to different investor preferences and risk tolerances in the realm of passive real estate investing.