The two main types of real estate investing are active and passive. Active investors have more control and typically earn more money. But they must invest a lot more money, and spend a lot more time. A major disadvantage of passive real estate investing is the higher cost of entry. For one thing, you have to pay a down payment and closing costs, and there are also ongoing expenses.
Passive real estate investing can be a great way to diversify your portfolio. You can invest in single-family homes, apartment complexes, commercial properties, and more. Passive real estate investing can be a simple process with the right tools. A lot of crowdfunding platforms can help you diversify your investments, and you don’t have to be a big money-lender to get started.
While passive real estate investing requires less effort than active investing, it does not mean you can skip researching and doing due diligence. There are many resources available to help you with your research, including BiggerPockets, which features content from a community of real estate experts. This can help you decide whether or not passive real estate investing is right for you.
One type of passive real estate investing involves long-term rental property. In this type of investing, the tenants typically sign leases for a minimum of twelve months, but often extend beyond that. Typically, this means that you will have fewer tenant turn costs because most tenants will renew their leases.
Another form of passive real estate investing involves investing in REITs. These funds are companies that invest in real estate and earn income from equity gains. Some REITs allow you to invest in passive real estate through the sale of REIT shares. REITs must invest at least 75% of their assets in real estate. They must also distribute 90% of their taxable income to their shareholders.
Some passive real estate investing involves investing remotely. This is a great option if you want to remain involved in the property but don’t have time to manage it. For example, some investors choose to invest in a vacation spot where the property is popular with tourists. If you don’t have time to physically visit the property, you can hire a property manager to handle the day-to-day tasks.
A property management company will charge you a one-time setup fee, plus ongoing management fees. The fees can be as high as 10% of the rent. They will also charge various fees for lease renewals, maintenance, and other services. These fees can add up quickly. Hence, it’s important to understand the cash flow and profit margins of the property before hiring someone to manage it for you.