There is more to real estate investing than flipping houses or managing rental properties. You can earn money from real estate investing without all of the time and action required in more active forms of investment.
Passive real estate investing does not require a lot of effort by the investor. Like money in a 401(k) that is left alone to grow, using real estate investment trusts (REITs), crowdfunding opportunities, remote ownership and real estate funds are how to invest in real estate to make passive income. Passive real estate investment allows you to earn extra income on investments without having to actually buy real estate properties.
Understanding Passive Real Estate Investing
If you are wondering, "Is investing in real estate a good passive income ideas," consider what is involved.
Passive investors don’t typically deal with properties and may never see the property they've invested in. With passive real estate investments, investors do not control which properties are invested in. Although the investments may not offer the same tax benefits as active real estate investments managed by an investor, they do have more liquidity.
Consider how to invest in real estate to make passive income with these ideas. They represent the most common ways to passively invest in real estate.
A group of investors who combine their money to invest in things like mortgage funds together is called crowdfunding. By joining a group like this, there are opportunities to invest in something larger than what would be available to a sole investor.
This crowdfunding investment process is similar to investors pooling their money together on online platforms to invest in partial shares of stocks.
Real Estate Investment Trusts (REITs)
Another example of how to invest in real estate to make passive income is the real estate investment trust, or REITs. These are investments in companies that operate as trusts. REITS invest in different types of real estate, although primarily commercial real estate. The trust pays out profits to shareholders in the form of annual dividends.
While investors, or shareholders, receive dividends from their investment, REITs are responsible for owning and managing properties, including collecting rent, providing mortgages and collecting interest. REITS are similar to publicly traded, similar to stocks, and can be included in retirement accounts.
Real Estate Funds
Another type of publicly traded real estate security is the real estate fund. These funds are mutual funds that trade public real estate securities, including REITs. These real estate funds are longer-term investments than REITs, offering investors a return through appreciation instead of dividends produced by REITs.
Real estate funds are more diverse than REITs, with a variety of investments other than commercial real estate. Like other mutual funds, they are managed by investment professionals.
Passive real estate investment includes remote ownership of rental or commercial properties. The investor turns over daily management and maintenance of the property to an on-site manager. The manager keeps the investor apprised of what is happening with the property.
Remote investment offers the type of returns received through active real estate investments while someone else manages the property. But it also offers risk because the investment is managed by someone else the investor must trust..
What Are the Benefits and Risks of Passive Real Estate Investing
Investing passively in real estate can provide extra income for investors, but there are risks to consider. Consider these benefits and risks.
Passive Real Estate Investing Benefits
- With passive real estate investing, less money is needed. Investors can jump right in, putting their money in different passive income investments that they would not be able to acquire on their own.
- No real estate or investment knowledge is required.
- Passive real estate investing provides more liquidity than active investments.
- Less time is required in passive real estate investing because investors put their money into funds and leave it alone.
Passive Real Estate Investing Risks
- Passive real estate investing does not offer the same amount of profit as active investments.
- Passive investments require the investor to rely on others to manage funds and real estate.
- Passive real estate investments are more vulnerable to market swings than active real estate investments.
Want to Know More About Real Estate?
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